Thursday 10 November 2016 1:13 pm

Donald Trump’s ambiguous trade policy is a massive opportunity for Britain to catalyse the creation of a new Prosperity Zone

Much ink has been expended on what a Donald Trump presidency will mean for trade.

He has promised at various times in his campaign to slap 45 per cent tariffs on China and Mexico, to pull the US out of Nafta and the WTO, and has railed against the TransPacific Partnership.

Naturally many people have assumed that this means he is an old-fashioned nationalist, populist protectionist. His policies have more in common with Bernie Sanders than Hillary Clinton.

At the same time, however, he has said that Britain would be at the front of the queue for a free trade agreement with the US, not at the back as President Obama had previously asserted on the eve of the Brexit referendum. Like much of what Trump has said, his economic statements are vague enough to admit two radically different approaches which might deliver the top line goal.

Take China. Trump is correct to identify China as a distorter of its markets. Its plethora of State-Owned Enterprises, and even private firms with a range of government privileges and benefits, has a clear and negative impact on global trade. This effect has visited itself in very real ways on the UK economy in the form of job losses at the steel plants in Redcar and Port Talbot.

Tata Steel Expected To Cut A Thousand Jobs In Wales
Chinese trade policies are part-responsible for the problems at Port Talbot and Redcar (Source: Getty)

Slapping an indiscriminate 45 per cent tariff on all imports from China would drive a sledgehammer through the fragile global economy and push us back into a recession. The inflationary effects would be massively anti-poor. On the other hand, if Trump’s China policy contains a mechanism to actually deal with the country’s distortions, that is narrowly tailored, then it could lead to a lowering of those distortions and the creation of wealth.

Read more: On economic policy, Trump is the bigger danger to both the US and the world

Many pragmatic business people and entrepreneurs are comfortable holding diametrically opposed views in their heads at the same time. But what must emerge over time in a Trump administration is a single, coherent vision. It is here that Britain’s Brexit moment could lead to a positive influence on the direction of travel of the US administration.

As Britain leaves the EU and, assuming it is able to negotiate free trade deals with other countries (for which it must be outside the Customs Union and outside the EEA), then it could catalyse the development of a Prosperity Zone of like-minded countries that are actually open to trade, embrace competition on merit as an organising economic principle, and protect property rights. Such a zone must include the United States, and must build on the UK-US axis, a relationship whose health is a vital indicator of the wellbeing of the globe.

A Prosperity Zone, where its members commit to reduce their trade barriers and economic distortions, consisting of the UK, Australia, New Zealand, Singapore, as well as the Nafta countries and perhaps Switzerland, would constitute fully 30 per cent of the global economy. The impact of such a zone would be tremendous, unleashing as much as 1.5 per cent increased Global World Product year on year for 15 years.

Read more: A Global Free Trade Alliance must be Britain’s stunning post-Brexit future

To achieve this, the Trump administration will have to recognise that the reason for its success is the core block of angry men and women in battleground rust belt states like Ohio, Pennsylvania, Michigan and Wisconsin, who believe (with some justification) that the economic game is rigged against them. They have seen wages rise somewhat during the period of globalisation, but costs rise faster.

Republican Presidential Candidate Donald Trump Campaigns In Canton, Ohio
Trump's core supporters have seen costs rise faster than wages (Source: Getty)

A lack of competition at home and abroad has been a twin threat to their standard of living. The explosive global growth after the Second World War has hit a road block as global trade talks stalled, and progress on structural reforms ground to a halt.

For the last 20 years, the global economy has slowed, sometimes dramatically so. In particular, the world’s poor badly need the engine of global growth that the Prosperity Zone could represent.

If the Trump administration misdiagnoses the problem, however, and imposes medicine that is worse than the disease, it will have lost a historic moment to turn a period of deep uncertainty into one of hope.

Read more: How free trade died in the US – and the same could happen in Britain too

The new administration in America also means that the UK has just became much more important to Europe. The UK can and must now play a role in ensuring that the eastern edges of the European continent are protected from Russian aggression and adventurism. It must increase its contribution to Nato, and play the vital role in that alliance that the US once played prior to the Obama administration’s disengagement from the world.

The pathway out of uncertainty is always difficult. But great opportunity has only ever come out of such periods of uncertainty. The American and British people are being called to a moment in time for different reasons, but if there was ever two peoples who are capable of rising to the challenge before us, it is surely these.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.