26 June 2019
Originally published by CapX.
When Margaret Thatcher first entered 10 Downing Street, 40 years ago, Britain was a very different place. Those who cannot remember it would find it almost unrecognisable. For many voters, especially younger voters, it means they have no idea of the destruction that a real socialist government can bring.
I had just started to study medicine at University and I remember the sense of optimism that the Thatcher victory brought. We saw unemployment treble in the year before the last election, we saw inflation reaching almost 28 per cent. Punitive tax rates had led to a brain drain with some of our top wealth creators abandoning our shores. The trade union barons told us when we could and could not have our public services delivered with mounds of household waste decaying on our streets. Britain’s international influence diminished as the world watched in horror and disbelief at the sad and desperate plight of our country and we lived in the shadow of fear of the Soviet Union at the height of the Cold War. Across the Atlantic, the United States still struggled with the aftermath of the oil shock and the Vietnam war, and the doomed Carter administration seemed unable to rally the spirit of America. This was all to change.
In 2011 I was fortunate enough, as Secretary of State for Defence, to be asked to speak at the Ronald Reagan Centennial dinner. I spoke about the President’s relationship with Mrs Thatcher. At a time when leadership was so needed they brought values, vision and valour.
The Cold War did not just end. It was won. It was not an accident. It came about because the leadership of the free world was committed politically, militarily, and morally to the defeat of totalitarian ideology and the triumph of liberty and freedom. It was not an exercise in expediency but the application of conviction.
Of course, for generations, the transatlantic alliance has been built on our mutual security interests, our shared democratic values, and our commitment to take the lead in building a safer, more just and more prosperous world.
It is as true today as it was on D-day 75-years ago, when American and British soldiers fought heroically alongside our other allies to liberate Western Europe from the scourge of fascist totalitarianism. Who could not have been moved watching the last of those veterans return recently to commemorate the sacrifices that have led to our collective freedom?
It is perhaps understandable that the Thatcher-Reagan legacy tends to be remembered primarily in terms of defence and security, but equally transformative was its economic emphasis on opportunity and meritocracy at home and a free-market doctrine abroad that would become accepted as the Washington consensus.
Ronald Reagan and Margaret Thatcher understood that our strength lay in people not governments and that liberated from the dead hand of the state the innovation and drive of free people would triumph. They believed that competition is to be welcomed not feared — that it is the means by which we judge our talents, one against the other, without recourse to conflict. They knew what they believed to be right and had the courage to say so; and they knew what they believed to be wrong and had the fortitude to confront it. They knew that in a free society the market works – that the combined wisdom of millions of individuals, acting in their own interests, is always likely to trump the wisdom of the self-selecting elites.
They also had an abiding faith in the benefits of free trade.
Margaret Thatcher described free trade as:
“a force for peace, freedom and political decentralisation: peace, because economic links between nations reinforce mutual understanding with mutual interest; freedom, because trade between individuals bypasses the apparatus of the state and disperses power to customers not planners; political decentralisation, because the size of the political unit is not dictated by the size of the market and vice versa.”
In his State of the Union address in 1983, Ronald Reagan declared that “As the leader of the West and as a country that has become great and rich because of economic freedom, America must be an unrelenting advocate of free trade.”
The joint leadership of the United States and the United Kingdom in the economic sphere that goes to the heart of our current prosperity today was kickstarted, if not invented, in that era.
Internationally, capitalism has been responsible for the greatest liberation of the world’s poor in history. In the mid-1970s 12 per cent of the world’s population lived on the equivalent of under one dollar a day, now that is close to 2 per cent. Open markets, globalisation and trade deregulation have revolutionised the prospects of many of the world’s most disadvantaged people far more than aid programs could ever manage.
In 1986 President Reagan helped launch the Uruguay Round of multilateral negotiations that led to the establishment of the World Trade Organization (WTO), which underpins our economic success.
Since its foundation in 1995, the WTO has been shaped by successive British and American governments with a central proposition: that competition and open markets are the way to drive productivity and competitiveness.
That is why our nations were founding members of the General Agreement on Tariffs and Trade in 1948.
And the positive effect that these organisations have had is stunning.
A paper published by IMF researchers in 2005 concluded that the WTO has had a powerful and positive impact, amounting to about 120 percent of additional world trade, or $8 trillion in 2003 alone, relative to a world without either the GATT and WTO.
And their achievements are not just about trade. Trade is about how we helped to spread prosperity. Prosperity underpins social cohesion.
That social cohesion underpins the political stability that is the foundation of our collective security. And I believe that our shared values, our enduring cooperation and special relationship is the bedrock upon which this is built.
As for our bilateral economic ties, they are second to none. Our mutual investments are valued today at around $1 trillion. The US is the single biggest source of inward investment into the UK, accounting for more than a quarter of the overall total.
And this investment is very much a two-way street. The United Kingdom is the United States’ largest investor, and our top destination for UK FDI, accounting for nearly a fifth of our overall total. Every morning a million Americans go to work for UK firms in the US, while around a million Brits go to work for American firms in the UK. The US is our largest single bilateral trading partner, worth £190.5 billion last year or around 15 per cent of total UK trade. This is up 4 per cent on the previous 12 months.
The latest figures from the Office for National Statistics show that goods exports to the United States increased by 11.9 per cent to £57.6 billion in the 12 months to April. And in 2018 we exported more than £63 billion worth of services. The United States accounts for 18.6 per cent of our total exports as a country, while at the same time the United Kingdom is a top five export market in 33 US states, supporting jobs across America.
The efforts made to deregulate markets, free-up the movement of capital and remove barriers to trade have created the economic opportunities that we enjoy today.
I believe that our relationship with the US is as strong now as it ever was, and I was therefore personally delighted to meet with President Trump during his successful state visit to the UK.
So, what does the future hold?
Well, as a first step we have been working to ensure that there is no disruption to our trade relationship as we leave the European Union. This includes the signing of a Mutual Recognition Agreement confirming both Governments’ commitment to maintaining all relevant aspects of the current EU-US agreement. We have also signed other agreements with the US, including on wine, spirits and marine equipment to ensure continuity as we leave the EU.
Going beyond continuity, I believe that there is a real appetite to strengthen our already special relationship even further once we leave the EU through a bold and ambitious free trade agreement. Positive and productive conversations are taking place to create an environment for the free trade agreement through the UK-US Trade and Investment Working Group. This has now met five times since Ambassador Lighthizer and I set it up in summer 2017.
And both the UK and US governments have been progressing the domestic work that we need to do to ensure we are ready to start formal negotiations as soon as we leave the EU. The UK Government has held a public consultation to inform our approach to a UK/US free trade agreement. We received over 150,000 responses from the British public and will be publishing a summary shortly. And we will be publishing our objectives for a UK/US FTA before negotiations begin.
Equally, we very much welcome the US government publishing their negotiating objectives for a free trade agreement with the UK. This is a clear demonstration of their commitment to beginning talks as soon as possible.
An ambitious free trade agreement will make it even easier for UK and US to trade with each other and invest in one and other’s economies. And it will do this while maintaining environmental protections and the high standards and quality for food safety and animal welfare that our people rightly demand.
We will ensure that the right of governments to regulate on public services is maintained, in line with recent international trade agreements. This will mean that the rigorous protections, such as for our National Health Service, are upheld.
Our position has been absolutely clear: the NHS is not, and never will be, for sale. As a doctor myself who trained in the NHS, you may say this is the natural position for me but it’s also held by members of the front bench and I believe the two candidates for the leadership of the Conservative party.
An ambitious FTA is a golden opportunity to support the flow of innovation and ideas in emerging technologies such as AI and the internet of things, where the UK and the US already have world leading capabilities.
As two of the most innovative economies in the world, we should work together to shape the sectors of the future, from trade in services, to tintech, to data driven technology. This will benefit the global economy and bring prosperity to our citizens.
Not only will this be a boon for businesses and communities across our countries, but this FTA could be a trailblazer, setting the global benchmark for how two leading economies can trade with each other.
So I’m pleased that President Trump took the opportunity to underline his commitment to achieving this goal during his visit, emphasising the possibilities for producers and consumers on both sides of the Atlantic.
Just as we seek to expand free and open trade between our own economies, maximising the opportunities available to both producers and consumers, so we must do together globally. We must have the courage to seize the opportunities that lie before us and shape the world around us based on our own abiding faith in the concept of free trade itself, as we did in the Thatcher-Reagan era.
This country, the UK, has long been associated with both the concept and practice of free-trade. A small island perched on the edge of the European continent became the leader of world trade. It was from here that those such as Adam Smith set out the intellectual case for free and open commerce, arguments that are just as valid today as they were in 1776 when he published The Wealth of Nations.
And it is worth reminding ourselves of the positive narrative about trade and the improvement of the human condition that it has brought about because in the world around us there is unfortunately a rising chorus of protectionism which threatens to drown out the case for a free and open global trading system.
New barriers, many of them invisible, are emerging around the global economy creating new impediments to the open commerce that is the lifeblood of global prosperity. What is worse, many of these impediments are being introduced by G7 and G20 countries themselves, the very nations who have prospered most from the open, liberal trading system of recent decades. Research by the OECD has shown that protectionist instincts have grown since the financial crisis of 2008. By 2010 G7 and G20 countries were estimated to be operating some 300 non-tariff barriers to trade – by 2015 this had mushroomed to over 1,200.
Protectionism can be seductive but is a dangerous affair. I have described it as the class A drug of the trading world – it can make you feel good at first but it can prove disastrous in the long term.
It is economically destructive, preventing us from reallocating global resources effectively. It is also socially regressive because those on lower incomes spend a higher proportion of their money on goods than services so tariffs and barriers will hurt the poor more. And we will all pay the price if those denied the opportunity of global prosperity turn their backs on the partnerships and cooperation that underpin global security. We all must ensure that those who have most benefited from open and free trade do not pull up the drawbridge behind them and deny the same benefits to others: whatever generation, whatever part of the world they come from.
For trade liberalisation and integration have gone hand-in-hand with a boom of international trade, growing at an annual rate of some 8 per cent a year since the fall of the Berlin Wall, with some of the biggest beneficiaries being developing economies. This was underpinned by the creation of the World Trade Organisation itself, shaped in large part by the United States and United Kingdom.
The UK will soon regain its ability to conduct an independent trade policy for the first time in more than 40 years. And we will have the opportunity to bang the drum for reforming the global trading system at the WTO, advocating new measures to recognise the growing importance of trade in services and the urgent need for their liberalisation.
We believe in a rules based global trade system with the WTO at the centre. But realise the need for the WTO to reform.
For the pace of reform at WTO has failed to keep up with the demands of the information revolution. We can carry the equivalent of whole bookstores on our mobile devices, downloading in seconds. And where once-upon-a-time the exchange of goods practically defined trade, we now live in an emerging knowledge transfer-based trading world, where an engineering report, a 3D printer design, or new advances in machine learning can reduce – or even eliminate – the need for the physical transfers of goods.
These are exciting times.
The blurring of the line between a good and service, the ever-greater importance of the digital economy and the gradual erosion of the importance of geographical barriers, is reshaping our world at a staggering pace. The WTO has estimated however that despite the fact that two-thirds of global GDP and employment is now in services, that barriers to trade in services today are as great as they were to trade in goods 50 years ago. IMF research suggests that liberalising trade in services could add about $350 billion to G20 GDP in the long term.
As a services orientated economy, and the world’s second largest services exporter, this is clearly a key objective if we are to realise our potential as a truly ‘Global Britain’. Research from the Bank of England suggests that if a large sample of trade partners lowered their services trade barriers to the level of the least restrictive country, the UK’s current account deficit could fall by up to 15 percent.
But when we think of how the world has change, let’s just think about this. In 1995, when the WTO was formed, the world of trade was hugely different. Imagine that, back then, I had asked you the following question: “if I sell you a digital code over the Internet, to make something on your 3D printer, have I sold you a good or service?”. In 1995 the terms of the question itself would have meant almost nothing. That is the scale of the challenge that we face.
The United Kingdom and the United States are in a unique position to drive the updated process of the international rules-based trading system to provide and function more effectively. To create a level playing field so that the benefits can be enjoyed by everyone.
This means reforming international institutions to prevent countries engaging in unfair trade practices such as distortive subsidies or dumping. It means tackling issues like state owned enterprises and industrial subsidies. It means strengthening the dispute settlement system. It means improving transparency so that we can see which businesses globally are genuinely private sector and those which merely act as cover for the state, undermining the rules upon which free and fair trade are based. And it means removing barriers to trade by agreeing new rules for e-commerce, and tackling obstacles to digital trade such as data localisation.
Our two great nations have done so much down the generations to open up our markets, and those of us who genuinely believe in free trade have a duty to uphold these values. From helping create GATT out of the ashes of the Second World War, to moulding the World Trade Organisation, our two countries have always led from the front as passionate advocates of global free trade. And we have always embraced the future as an opportunity, recognising how and when to adapt existing systems, rules and regulations to ever-changing circumstances.
As President Reagan once said: “Nothing ends here; our hopes and our journeys continue.” I have every confidence that America and the United Kingdom will continue that journey together hand-in-hand. Stronger together, for ourselves, and for the world around us.
This is the text of a speech delivered to the Centre for Policy Studies Margaret Thatcher Conference at the Guildhall, in London, on June 25, 2019.
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