The UK has confirmed that after Brexit it will continue to offer duty-free access for products from LDCs – the worlds 48 poorest countries, including Bangladesh, Cambodia, Laos, Ethiopia and Haiti

The UK has confirmed that after Brexit it will continue to offer duty-free access for products from LDCs – the world's 48 poorest countries, including Bangladesh, Cambodia, Laos, Ethiopia and Haiti

What a difference a month makes to trade politics. In his latest roundup, Mike Flanagan notes that events in June suggest the role of the EU now seems secure, details of the UK's exit from the EU are more confused than ever – and the approach of Trump's team on steel imports risks creating a crisis.

Back in late winter, most smart money in the West seemed to agree:

  • Donald Trump wanted to make life harder for America's trading partners. It was unclear which specific trade policies would change – but a lot was going to change, and very quickly.
  • With discontent all around, there was also a real likelihood the EU would start breaking up.
  • The UK was going to begin its withdrawal negotiations from the EU around 31 March  – and would leave it, and the European Single Market, by March 2019.
  • China was the big hope for anyone wanting to see growth in free trade. No country on earth was making louder noises about how dedicated it was to lots more open trade.

But now, half-way through the year, that all looks outdated.


China has made almost no progress on developing more open trade…

…with the Trans-Pacific Partnership (TPP)
Most countries negotiating the TPP say they would like to see China join. But even the most enthusiastic supporters now doubt this is on the cards any time soon. Singapore's ex-Prime Minister, Goh Chok Tong, said China simply isn't as interested in opening its market for services as the other members, or in giving foreign investors intellectual property protection: both essential elements of the TPP the US walked away from. Other authorities point to the TPP's ban on government-owned businesses receiving subsidies and the incompatibility of the TPP's worker protection and labour rights provisions with China's dedication to government control of unions.

…or on the proposed Regional Comprehensive Economic Partnership (RCEP)
China's major medium-term trade objective is to sign the RCEP trade deal with most of the rest of Asia – but few other Asian countries are prepared to offer it further access to their markets.

China is also continuing to fight with the major developed countries
The EU, US and Japan argue they have the right to restrict Chinese imports because its government remains committed to subsidising local companies. China, they claim, has made no progress since 2000 to becoming a real market economy. This upsets China – but it has shown no signs of abandoning its commitment to subsidies.

The US

Trump's massive threats to US imports during his election campaign have gone practically nowhere.

Renegotiating NAFTA (the North American Free Trade Agreement) won't even start until mid-August. Practically every pressure group in the US is lobbying Congress on issues for negotiation that most voters probably see as impossibly obscure.

Textile trade groups like the National Council of Textile Organizations (NCTO) want duty-free access to the US restricted to garments made in Mexico with raw materials from the NAFTA countries. The garment retailers' trade association, the American Apparel & Footwear Association (AAFA), wants to include garments using some raw materials not available in the NAFTA region, claiming such flexibilities encourage manufacturing to stay in the US.

All very important, and reproduced from hundreds of other lobbying groups – but hardly the revolution in trade policy we'd been led to expect. Any kind of conclusion before mid-2018 looks highly unlikely – and the results will then need Congressional approval.

Most other trade issues are currently wrapped up in similarly complicated dances likely to lead nowhere this year.

Relations with China. After all the bluster about sanctions against China, US President Donald Trump and China's President Xi Jinping in April agreed a '100 Day Action Plan' for the two countries to agree a wide range of improvements in trade relations.

So far the Action Plan has been an anti-climax, with Trump's team making huge claims about a few relatively trivial plans to help American companies sell beef and financial services in China and China to sell poultry in the US. But an imminent trade war had been diffused by diplomacy.

The steel row upset all that. China has huge steel overcapacity, and America is convinced China is unfairly subsidising its steel exports to the US. Trump's team wants to claim the subsidies undermine US national security, and is threatening restrictions that would limit steel imports from other countries like Germany – making other US steel-buying manufacturers (like car and aeroplane makers) less competitive. The US military has even argued that restricting steel imports is itself a threat to US security.

So, just as the US seemed to have made trade policy boring again, Trump's team has chosen a problem that worried few Americans to damage most of America's trade policy – and destroy the common front against Chinese protectionism the US had been maintaining with the EU and Japan.

The EU

Emmanuel Macron's win in French Presidential elections in early May undermined fears the EU would to break up – but there were doubts over his ability to get a legislative majority at the June Parliamentary elections that would let him carry out his programme. He won that majority. With the September elections in Germany now looking a straight fight between two strongly pro-EU parties, the issue in most of Europe is how to restart the economy and create more jobs. The role of the EU seems more secure than ever. 

Meanwhile, there's the UK

In early April, Britain's Prime Minister called a general election intended to give her a clear majority in Parliament to support the following two years' complex negotiations with the EU over Brexit.

In fact, after mismanaging the campaign spectacularly, she can now only get a majority by relying on support from a Loyalist party in Northern Ireland. She'd normally be expected to resign – but her party has no heart for the further chaos that electing a new leader would cause.

Calling the election delayed the start of Brexit negotiations until mid-June. Theresa May's worsened political weakness has also thrown her negotiating strategy into confusion – although it has brought about some certainty in a few areas.

There's particular confusion about:

  • Britain's consistency. Few, in Britain or in the 27 remaining EU countries, believe the UK government's current strategies will remain unchanged until the end of 2018. That's when the Brexit negotiation's agreements have to be referred to the UK and EU Parliaments for approval.
  • "No deal is better than a bad deal." May continues to claim she's prepared to abandon negotiations with the EU and simply walk out if what's being offered doesn't meet her needs. But only one-fifth of her own MPs agree with her – and abandoning talks would lose the support of her Northern Irish partners, whose major objective is an open border between Northern Ireland and the Irish Republic.
  • What happens in March 2019? May's team still insist they want to leave the European Single Market and the Customs Union in early 2019. Since 40% by value of the UK's apparel imports come from the Customs Union, this would be devastating for the UK apparel industry. But most UK businesses are now lobbying increasingly hard for several years' delay in this.

Two things, however, seem to be more certain:

  • Migration. UK employers – from garment factories to particle physics research institutes – are increasingly vocal about their needs for access to EU talent. The UK and the other 27 members now seem to agree on giving current EU citizens rights to live and work anywhere in the current EU at least for the next few years. Lots of negotiations are required – but about the details of these rights, not the principle.
  • Least Developed Countries (LDCs). The UK confirmed on 24 June that after Brexit it would continue the EU's programme of unconditional duty-free access for products from LDCs – the world's 48 poorest countries, including Bangladesh, Cambodia, Laos, Ethiopia and Haiti. It was, though, more vague about its commitment to some less poor countries, such as Mauritius and Pakistan, which get duty-free access to the EU and UK under different programmes. 

Uncertainty will worsen. Throughout June, the UK government has retreated from Brexit negotiating positions it had formerly claimed to be almost non-negotiable.

Overall, as of the end of June:

  • The EU looks likely to remain the world's largest importer for the foreseeable future;
  • China's commitment to keep defending its domestic protectionism is getting it nowhere internationally;
  • Trump's teams are working at lots of minor changes – but their attitude on steel imports risks creating a crisis;
  • The details and timing of the UK's exit from the EU are looking hazier than ever. Personally, I now doubt the UK will ever leave. The British government's political weakness comes as austerity and economic performance worry voters more than EU membership. But that's a view most of us are merely whispering to each other.

Mike Flanagan is chief executive of Clothesource Sourcing Intelligence, a UK-based consultancy that provides the western apparel buying community with objective information on apparel production, trade, price competitiveness, and apparel producers in over 100 countries.