Date: Thursday, 23 January 2020
The meaning could not be clearer, the timing scarcely worse. Asked at the World Economic Forum in Davos about the UK’s proposed “digital tax”, the US Treasury secretary, Steve Mnuchin, made it plain that America would not tolerate such a move: “If people want to just arbitrarily put taxes on our digital companies, we’ll consider arbitrarily putting taxes on car companies.”
Though not directly connected, the unveiled threat came just as Jaguar Land Rover announced 500 job losses at its Halewood plant. That development highlights the extent of the jeopardy facing what remains of British manufacturing industry. If America does indeed slap a tax on imports of British-made vehicles, especially the Jaguars, Land Rovers and Range Rovers that find such a ready market in America, then there will be many more job losses coming down the line.
For good measure, Mr Mnuchin also made little secret of his displeasure that the chancellor, Sajid Javid, had said elsewhere at the Davos meeting that Britain would “prioritise” an EU trade deal over one with the US.
Thus, for perhaps the first time, a trade war has broken out between two nations, the UK and the US, before they’ve even started to embark on their negotiations for a free trade deal. It is a remarkable first economic milestone for Boris Johnson’s recently elected government.
The French, far more determined in such matters than the British, have already caved in to American pressure and abandoned their plans for a tax on the tech giants, such as Apple, Amazon and Google – all, of course, American-based. President Macron acted alone on behalf of his nation, one of the largest economies in the world, and without the heft of the whole EU behind him. Faced with punitive tariffs on imports of champagne and cheese and other delicious French produce, Mr Macron quietly put his new tax away.
It was a graphic display of the economic balance of power. Had Europe acted together, France (or Britain now) might have been in a stronger position to fight its corner, though the Trump White House seems to be permanently on the lookout for new sparring partners in economic warfare. After all, although tensions with China have subsided, that geopolitical conflict is far from over.
The White House has also told – it is as strong as that – the British not to allow Huawei much access to the national 5G infrastructure, again with the explicit threat of a withdrawal of economic cooperation. It might also make the Americans less enthusiastic about sharing intelligence secrets with the British as part of the global Five Eyes intelligence network.
Contrariwise, if the British show hostility to China’s technological champion, then Beijing will be that much less willing to allow the UK to hitch itself to its still fast-growing economy. There are choices and trade-offs to be made, and few where Britain will be able to enjoy the best of all worlds.
All of which leaves the chancellor with yet more headaches as he gears up for his first proper Budget on 11 March.
If he presses on with the digital tax proposed by his predecessor, Philip Hammond, then he risks undermining the US-UK trade talks before they’ve started in earnest. If he and the prime minister follow the French example and postpone the new tax, pending some face-saving review involving the OECD, say, then the UK not only loses some much-needed tax revenues, but leaves the high street as exposed as ever to an unfair online challenge.
This affair illustrates precisely how the pursuit of some concept of absolute national sovereignty amounts to chasing a chimera. Britain is too small an economy, whatever its world ranking, to be able to stand up to far larger powers or blocs, including the EU, the US, China and India.
As a medium-sized nation heavily reliant on international trade and investment, the UK is extraordinarily disadvantaged in dealing with countries that are so large and who trade, proportionately, rather less than the UK. In other words, Britain has more to lose than they do, relatively speaking, from a failure to agree a new trade deal.
Those are the realities of economic diplomacy. It is why the famous American chlorinated chicken will be making its way into the freezer cabinets of British supermarkets before long.
Trade is only one of the many points where the UK will find its ability to dictate terms to larger powers embarrassingly limited. Britain can bang its bongs as much as it wishes; it can keep dispatching its underemployed minor royals to market UK produce; and its prime minister can practise his rhetorical skills to restore the national mojo as often as he likes, but none of that will persuade the US, the EU or China to grant it any special favours.
