The UK must lead on free trade with Trump in the White House

The UK must lead on free trade with Trump in the White House

Theresa May’s passionate call for free trade stood in contrast to Donald Trump’s rhetoric on protection and America First at his inauguration. It will certainly be interesting to see what results from their meeting later today.

As Britain prepares to leave the European Union by triggering Article 50 in March of this year, the Prime Minister outlined in her Lancaster House speech the manner by which we achieve a free-trading vision – one which has been set out in the work of the Legatum Institute’s Special Trade Commission, which will meet in London at the beginning of February. That vision calls for a Prosperity Zone of like-minded countries, trade deals with a number of countries, real economic partnership agreements with developing countries and pro-competitive regulation at home.

In his reaction to the Prime Minister’s speech, Commission Chairman, Shanker Singham noted that there are three fundamental pillars which will be necessary in order for Brexit to have a successful outcome. The first was that we should not be part of the Customs Union. No-one should be in any doubt that the UK will be coming out of the Customs Union as of March 2019. Yes, we will want to have good customs arrangements with the EU (which would be part of any comprehensive FTA in the end state, but could also form the basis of fully WTO compatible interim measures between exit and this end state). The Prime Minister was clear that the UK would not be part of the Common External Tariff and would control our own WTO schedules which is the crucial element that enables us to negotiate trade deals with others – something we can do right now.

The second pillar – being out of the single market – could not have been any clearer. This will enable us to negotiate the deals in services that we need to become the world’s leading service provider.

The third pillar is more open agricultural markets, which is a necessary prerequisite to many of the trade deals we will want to sign with developed and developing countries alike, and indeed will unlock the services agreements which could be so important to UK service providers.

The Prime Minister also made it clear that no deal was better than a bad deal. But it is massively in Europe’s interests to negotiate a comprehensive free trade deal with the world’s fifth largest market, a point that German Finance Minister Wolfgang Schäuble made in Davos. As long as we continue to make positive and sensible offers, especially in the areas of defence and security cooperation, we will improve the negotiating environment. If the Europeans then refuse to cooperate in doing what is very much in their own commercial interest, their peoples will know who to blame.

It is critical as we go forward that politicians and the government are careful how they talk about the Customs Union. There are many countries, such as Australia, New Zealand, the US and others who very much want to negotiate free trade agreements with us. The Prosperity Zone of like-minded countries is more important now than ever, given the lack of progress in trade agreements around the world. It is the like-minded group who can move their economies to truly open markets with competition as an organizing principle, properly protecting property rights, and by doing so can lead the world in the direction of prosperity, hope, and peace.

However, these countries must all do the right thing by their own citizens. They must negotiate trade deals with countries that are ready to do them. The more these crucial trading partners hear talk of an extension of the customs union, the more they are likely to focus their energies on their scoping agreements with the EU or with other arrangements such as the China Economic Partnership in Asia. We will be left behind.

Britain stands on the threshold of great potential success. We can be a sovereign nation once more, leading the world and not merely following. In the battle between competitive market capitalism and state-led cronyism, we are a crucial player. But to play the role that destiny has called us to play, we have a narrow window of opportunity. Our trading partners outside the EU must believe that we will exit the Customs Union and the Single Market on March 31, 2019, ready, able and willing to conclude deals.

Europe may not cooperate. Political interests may continue to trump commercial ones. The self-harm that Theresa May spoke about may continue. That will be up to Europe. In that case, Britain will continue to lead on trade agreements with other nations and in deepening the liberalisation in the WTO. This is entirely within our power. We must seize the moment.