ECONOMY

France and Britain trip up at the boundary of geopolitics and trade

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Say what you like about the deteriorating relations between the UK and France, but Boris Johnson did his best to help his cross-Channel friends out of a diplomatic hole this week by distracting attention with his own shambolic attempts at furthering transatlantic trade relations. France’s fury at the US’s submarine-based perfidy was somewhat assuaged by Emmanuel Macron and Joe Biden yesterday. But the entire episode wasn’t exactly a French transatlantic diplomatic triumph to equal, say, being the US’s first-ever international treaty partner (the Treaty of Amity and Commerce of 1778, if anyone’s taking notes). The first meeting of the EU-US Trade and Technology Council (TTC), scheduled for next week, still might be delayed a short while at France’s urging to make a point.

Then along came Johnson with his own comedy act, his people briefing that the UK wanted to join the US-Mexico-Canada Agreement (USMCA), the successor to Nafta, despite the fact that (as the US trade representative bluntly pointed out to us), the pact doesn’t have an accession procedure. This is a bit embarrassing on Johnson’s part. The cool kid Joe doesn’t want to be your one-on-one trade-deal friend, certainly not if you’re going to be mean to his longstanding Irish pals). So you do your best to join gangs which the cool kid is already in (but aren’t open to new members), or failing that join the Asia-Pacific gang the cool kid isn’t in yet but you think one day he might be (even though he says he won’t). All this to get a trade deal to which the British people are probably going to be at best indifferent and at worst actively hostile.

Today’s main piece looks more closely at the tangle of trade and national security interests involved in situations like this. Charted waters looks at how supply chain bottlenecks are weighing on the eurozone’s economic recovery.

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The submarine battle that nobody wins

The Aukus deal and related diplomatic blunders have managed to create a situation in which no country involved looks good. Australia and the US, whatever the wisdom of the longer-term military and geopolitical gains, have infuriated an ally with behaviour that is ham-fisted at best and duplicitous at worst. France has blown up a general transatlantic dispute with weak support from the rest of the EU, and its attempts at face-saving by postponing a tangentially related meeting frankly look a bit feeble.

The UK also helped to enrage Paris by joining in Aukus and telling France to calm down on the subject. It also unwisely attempted to exploit its ally status with the US by claiming it wanted to join a trade bloc that none of the three existing members envisage opening up. The ridicule this suggestion provoked has now caused the UK to back away from the idea at speed. Unlike the original Trans-Pacific Partnership, the latest iteration of which the UK also wants to join, USMCA is not an explicitly expansionist arrangement originally designed to export the US economic model across a huge and loosely defined geopolitical area. It’s a closed deal designed to tighten integration in a contiguous geographical bloc.

As we said on Tuesday, the more trade relations take on national security features such as resilience of semiconductor supply and export controls on sensitive technology, the closer commercial and geopolitical policy will become intertwined. But that doesn’t mean that military and strategic capacity necessarily creates leverage for trade policy or vice versa. In particular, medium-sized countries such as the UK and France with useful but not overwhelming capabilities in both areas need to manage their relationships delicately.

We’re going to tread extremely carefully in the minefield (ha ha!) of defence and national security issues, since they’re emphatically not our thing. But even we can tell that a military and intelligence alliance in the Indo-Pacific would be stronger with France, as Biden acknowledged yesterday. And we can see the logic of bilateral Franco-British military co-operation, which intensified in 2010 with the Lancaster House treaties and in theory remains close, whatever happens to trade between the UK and the EU. (We love this story of a French general bestowing the first field promotion in the British army in 43 years.)

Support for France has looked a bit halfhearted in the EU this week because the other member states don’t have anything like its defence capability and aren’t keen on threatening to crash the TTC to pursue a grievance in that area. But then the UK also looks somewhat unconvincing trying to forge its own way on international trade given the geographical pull of the EU market on the British economy. Anything London tries to do on digital trade, for example, will be hampered by its need to retain a data adequacy finding from the EU to allow the exchange of personal information to continue.

This confirms our firm view — though it’s probably not one held widely in London or Paris right now — that Brexit has left both the UK and the EU worse off.

This is not because defence policy is directly related to the UK’s EU membership but because it poisons the atmosphere and reduces the opportunities for co-operation. A TTC with the UK still in the EU (a co-operative UK, to be precise, not one run by Boris Johnson) would be a more convincing partner for the US when it came to issues involving security. On the other side, the UK would look a great deal more credible trying to promote trade with the Asia-Pacific region if it had the heft of the EU single market on its side.

We’re not supremely hopeful that sanity and calm judgment will prevail in these matters. A lot of pride is at stake. But if the alternative is the kind of thing we’ve seen over the past 10 days, governments must eventually see that trade and national security are overlapping issues whose relationship is complex and subtle. Please tell us they will.

Charted waters

The eurozone’s economic recovery appears to be faltering, with the latest edition of the closely watched purchasing managers’ index for the region suggesting the expansion is losing momentum.

The flash PMI for September came in at 56.1. Still above the crucial 50 mark that separates an expansion from a contraction in activity, but less than the reading of 59 recorded for August.

According to IHS Markit, one of the reasons for the fall was supply bottlenecks. “On one hand, some cooling of growth from the two-decade highs seen earlier in the summer was to be expected. On the other hand, firms have become increasingly frustrated by supply delays, shortages and ever-higher prices for inputs,” said Chris Williamson, the data firm’s chief business economist. “Businesses, most notably in manufacturing but also now in the service sector, are being constrained as a result, often losing sales and customers.” Claire Jones

Trade links

An analysis at the Australian Strategic Policy Institute says Canberra must take seriously concerns from south-east Asian nations including Indonesia and Malaysia about the Aukus deal.

The US and EU yesterday launched a joint task force on Covid vaccine supply.

The Council on Foreign Relations podcast discusses how the US has become less open to trade in recent decades and why calls for even more protectionism will further undermine the American middle class.

It seems Beijing’s attempt to join the CPTPP has led Taipei to up its game, Taiwan, which was at risk of wasting an opportunity to push for membership of the transpacific trade pact, is now pushing for membership.

The Dispatch has a piece ($, requires subscription) on why the US’s ports problem, as highlighted by the pandemic when capacity has been stretched to the max, has been decades in the making. Alan Beattie and Claire Jones

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