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In today’s newsletter:
Should we get our hopes up about a trade agreement with the US?
The latest developments in the political realignment
Tax experts debate
and more….
US Vice President JD Vance’s recent comments on the possibilities of a UK-US trade deal illustrate, again, just how hopelessly muddled and confused the current US administration’s thinking on trade is. At this stage, this is not news anymore. No economist who has looked at Trump’s mad tariff-setting formula could possibly think that that man can be reasoned with, or at least not when it comes to matters of trade.
Vance says that there is a good chance of a trade deal, because “[t]he president really loves the United Kingdom. He loved the Queen. He admires and loves the King.” He talks about a “real cultural affinity” between the two countries.
That is a terrible way to think about trade relations. The whole point about trade is that it is in itself mutually enriching: if it were not, it would not take place. You do not need to feel any kind of affinity with the people you are trading with. Even people who actively loathe each other can engage in mutually beneficial exchange. For example, I am a big craft beer enthusiast, and a lot of the people in the craft beer brewing scene are Corbynista hipsters, who would hate me if they knew who I was. But they want my money, and I want their beer. That is good enough. Forget “cultural affinity”.
Vance also says that “[w]ith the United Kingdom, we have a much more reciprocal relationship than we have with […] Germany. […] [T]he Germans […] are heavily dependent on exporting to the United States but are pretty tough on a lot of American businesses that would like to export into Germany.”
No, they are not. They could not be even if they wanted to. The UK left the EU Customs Union in 2021, but Germany is still very much part of it, and therefore does not have an independent trade policy. Germany is also the world’s seventh-largest importer of American goods and services, about of a par with the UK. It is just that they also export a lot to the US, because lots of Americans want to buy their stuff. And so what?
So if this UK-US trade deal happens, it will happen for all the wrong reasons. But I would support it anyway. It would not be an absolute guarantee for anything: there are no absolute guarantees with Donald Trump. NAFTA has not stopped him from lashing out at Canada and Mexico, quite the opposite. But a deal would provide a baseline of freer trade, which could be built upon under a less mercantilist future administration. The possibility of concluding free trade deals around the world is one of the unambiguous potential Brexit benefits. We should make the most of it.
Kristian Niemietz
Editorial Director
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IEA Podcast: Director of Communications Callum Price, Editorial Director Kristian Niemietz, and Senior Education Fellow Stephen Davies discuss the realignment on the right as it plays out in US politics, IEA YouTube
Better news on UK inflation paves the way for a rate cut in May
Responding to the latest inflation news, Julian Jessop, Economics Fellow at the Institute of Economic Affairs, said:
"The broad-based fall in headline inflation to 2.6% in March is another step in the right direction. The services and core rates excluding food and energy are still relatively high, but they fell too.
“Inflation is still set to rebound to at least 3% in April, led by energy and water bills and the pass through of higher labour costs. Nonetheless, the peak should now be comfortably below the 3.7% expected by the Bank of England and OBR.
“In the meantime, the latest jobs data confirm that the labour market is cooling. Moreover, money and credit growth remain too weak for any pick up in headline inflation to be sustained.
“The main uncertainty now is the fallout from the global trade war on both demand and supply. The net effect on UK inflation could still go either way.
“But the immediate impact has been to depress global energy prices, which are now much lower than the Bank of England had assumed.
“The upshot is that the Bank now has the green light to cut interest rates again in May. The MPC will probably want to stick to their ‘gradual’ approach and only trim rates by another quarter point. But there is a strong case for returning rates to a neutral level more quickly with a half point cut.”
Julian was quoted in The Daily Brit, Express, Yorkshire Times and Lancashire Times.
News and Views
Invisible Hands, The History Podcast, BBC Radio 4
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BBC Radio 4 have created a podcast series detailing the history of an idea – free market capitalism – in the UK. Episode 4, the Big Bang, was released this week.
Episode 1 - The Chicken Farmer
Episode 2 - The Mad Monk
Episode 3 - Selling the Silver
Episode 4 - The Big Bang
The calm before the storm, Len Shackleton commented on March’s labour market statistics in the Daily Express
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American EDI, Communications Manager Reem Ibrahim quoted in the Daily Mail.
'American taxpayers should not be forced to fund universities that treat people differently based on immutable characteristics.
'Schemes that prioritise ethnic minorities over white people are simply racist. Neither should governments dictate what private universities can teach, which students they admit, and which staff they hire.
'The solution is market-based reforms in higher education funding, promoting competition, individual choice, and reduced state involvement altogether.
'The UK Government should ensure that such discriminatory schemes are rooted out too.'
Who will pay more tax? Tax experts debate as Tom Clougherty of the IEA interviews Paul Johnson of the IFS, IEA YouTube
Our energy bills are not taxes – progressive pricing will only backfire, Andy Mayer in CapX
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Disposable Vapes Ban, Communications Manager Reem Ibrahim appeared on TalkTV.
Britain's Economic Collapse? From Global Leader to 27th Place, Tom Clougherty interviews Lord Moynihan, IEA YouTube
Businesses should put profit before purpose, Callum Price argued in CityAM:
“For businesses, profit and purpose are not opposites – they are one and the same. We should celebrate that. Businesses exist to make a profit, but they can only do that by providing things that people want and need. Their purpose is to provide value, and we all benefit as a result.”
Prices could fall for UK consumers if we don’t impose tariffs, Julian Jessop suggested in the i
“A trade war between the US and China could lower the prices of many goods imported into the UK unless the UK imposes tariffs of its own.
“This is because Asian producers who can no longer sell in the US are likely to divert goods to European markets. This will increase the supply of cheap goods, from tech products to clothing and furniture.”
Steel nationalisation is not likely to end well for taxpayers, Public Policy Fellow Matthew Lesh said on TalkTV
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International Programmes Manager Harrison Griffiths wrote about Trump’s trade approach for CityAM
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Four Types of Killjoy: #4 Anti-gambling | ||||||
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In this series of posts, the IEA’s Christopher Snowdon explains the background and beliefs of the anti-smoking, anti-alcohol, anti-obesity and anti-gambling movements in the UK. | ||||||
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The Carbon Market Time Bomb | Free the Power, Energy Analyst Andy Mayer interviews Nicholas Leighton-Hall, IEA YouTube
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EVENT: In Conversation with David Friedman | ||||||
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We are delighted to invite our paid subscribers to an upcoming IEA event, ‘In Conversation with David Friedman’. This event will occur on Wednesday, 7th May, from 18:00 – 20:30 at the IEA (2 Lord North Street, Westminster, London, SW1P 3LB). | ||||||
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EVENT: In Conversation with Dr Tom Hurst and Sir John Whittingdale OBE MP | ||||||
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We are delighted to invite our paid subscribers to an upcoming IEA event, ‘In Conversation with Dr Tom Hurst and Sir John Whittingdale OBE MP’. This event will occur on Monday, 28th April, from 18:00 – 20:30 at the IEA (2 Lord North Street, Westminster, London, SW1P 3LB). | ||||||
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