Labour Shadow Business and Trade Secretary Jonathan Reynolds recently stated that Labour’s approach to international trade would be similar to that of Joe Biden in the US. While there are certainly some positive points in Labour’s trade agenda such as its commitment to reforming the Board of Trade, attempting to replicate Bidenomics in the UK would be a mistake.
Bidenomics has seen the US government hand out massive subsidies to American firms to incentivise them to build and produce more goods in the country, thereby creating and protecting American jobs. Such a model would not be practicable for the UK to pursue. If we find ourselves in a subsidy war with the US (and the EU), we will lose. The US has much more fiscal firepower than the UK as it is so much richer. Most firms would choose the UK over the US, and while the UK would still retain some companies, the likelihood is that they would be less successful and productive than their competitors and all while being propped up by massive subsidies, paid for by UK taxpayers.
As such, these subsidies would be incredibly wasteful and the money would be better spent on other things. What’s more, they would likely be unworkable from a legal perspective. As Sam Lowe points out, America can largely do what it likes. Many countries may not decide to take issue with the US due to its economic and military power, they are unlikely to have similar reserves about taking legal action against the UK government for subsidising its industries. Being sued is not only a pain which would take up more of the government’s bandwidth, it would jeopardise the UK’s trading relationships with other countries and blocs and would see retaliatory tariffs levied on British exports.
However, even if the UK could match the massive subsidies offered by the US, it still shouldn’t. Joe Biden has been an improvement on Donald Trump in just about every single way, with the exception of international trade. Biden is not really that interested in striking a trade deal with anyone. He shares his predecessor’s contempt for the WTO and has doubled down on protectionist measures such as imposing high tariffs on imports to the US.
Labour – and the rest of the world – should be lamenting this, not attempting to emulate it. The US economy might still be able to grow despite American protectionism (although it does harm consumers) – but the rest of the world is hurt by it. Free trade and the liberal international rules based system and the organisations which have undergirded it such as the WTO have brought wealth and prosperity while helping to lift countless people out of lives of poverty and subsistence.
The WTO has its problems and free trade has its malcontents, but they are good things. They facilitate trade between nations and ensure that disputes are settled in a fair way based on legal rules and principles rather than one country being able to dominate another. America might be able to get its own way due to its wealth and strength, but is this a model that Labour would want to promote to other countries?
Rather than encouraging Biden in his protectionism, Labour should seek to challenge it. The Labour Party should be calling for the US to embrace free trade once more as it is this that will help the very poorest people in the world while also creating jobs and boosting the wages of working people. It should do this by working with the US administration to reform the WTO so that America’s concerns are addressed while ensuring that trading rules are fit for purpose and that disputes can be settled in a timely and fair manner.
Labour should also pick up negotiations for a free trade agreement (FTA) with the US. I’ve written before that only Labour can save the NHS as it is seen as the party of the NHS and so would have an easier time introducing necessary reforms without people assuming it was trying to privatise it. It could be argued that it is the same when it comes to striking a FTA with the US. The Tories struggled to make progress due to fear mongering that the NHS would be destroyed by US pharmaceutical and private equity firms. This was obviously nonsense, but that didn’t stop the media and lobby groups reporting it as fact. Again, Labour are more likely to get the benefit of the doubt when it comes to the NHS. Only Nixon could go to China, and perhaps only Labour can get a trade deal with the US. While we’re at it, a Labour government should encourage the US to (re)join CPTPP.
This is not to say there is nothing Labour should not attempt to emulate from Bidenomics. As pointed out above, large subsidies for manufacturing would be wasteful and possibly illegal. Rather than attempting to pick winners by supporting certain firms or industries, a Labour government could help the UK reach its Net Zero goals and provide abundant and cheap energy which would help heavy manufacturing. It should do this by investing in renewable energy such as offshore wind and other reliable and green energy sources such as nuclear.
Labour could also protect the steel industry and the environment by ensuring that UK steelworkers don’t face unfair competition from producers in countries with lower environmental standards. As I wrote for this site back in October, this would involve going further than the EU’s CBAM and see the UK lead the way by introducing a border-adjusted carbon tax.
There is a lot Labour can do with its trade agenda to protect workers and the environment. However, British Bidenomics is not the answer. A Labour government should embrace free trade and encourage the US to do the same.
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