The Return Of The Nation State

President Trump just changed the world's economics. Don't whine, adapt!

The world’s economists and establishment have got themselves into a complete stew about President Trump’s tariff regime. Forecasts of economic meltdown and destruction abound, as do threats of trade war. Kier Starmer is talking of retaliation while seeking the credit for Britian’s low rate (actually courtesy of Brexit and therefore Nigel Farage, not his Washington day trip). With impressive logical adroitness he’s also seeking to involve the King in smarming Trump into a trade deal this summer during the President’s trip to Scotland. Are shortbread, haggis and midges so compelling?

The London Stock Market closed down some 4% to 5% (depending on the index ). That’s a bad couple of days on the markets, not meltdown. The pound briefly rose against the dollar and fell against the Euro despite the UK having a 10% US tariff rate to the EU’s 20%, which seems odd until you remember the parlous state of the UK’s public finances.

While the chatterati and the anti-Trump media (i.e. most of the mainstream) are in full cry about the leader of the world’s most powerful country and praying for his replacement it’s time to look at the underlying facts.

Free Trade Is A Mirage

Underpinning the whole panic is the belief that free trade is fundamental to economic growth. Free trade means the unrestricted trade in goods and services, free of tariffs or customs duties. This means global competition – stuff can be made or delivered wherever it is most efficient and therefore cheapest. In theory (and all economics is no more than a theory) that means that industries in the importing countries either become more efficient or die.

After the Second World War global free trade was regulated by the General Agreement on Trade and Tariffs (GATT) which 23 countries signed in 1947. Government procurement was excluded from the outset and tariffs were reduced. Further reductions were secured in subsequent “rounds”, as GATT’s periodic negotiations are known. As the number of GATT members increased the length of the negotiations did too. The shorted round in 1949 took five months and had 34 countries. The 1986 Uruguay round had 123 countries and took 87 months. The last GATT round, the Doha one, started in 2001 with 159 counties. The round’s scope included patents, environment, non-tariff measures and has not yet completed, although there was an interim “Bali Package” in 2013.

GATT became the underpinnings of the World Trade Organisation (WTO), the UN body established in 1994 to regulate global trade. Pretty much all the UN are members or observers. Certainly GATT and the WTO have successes in reducing global tariffs. They have fallen from an average of 27% to 5%, (beware that “average” which masks huge variations by product and country).

It is nonsense to propose that we live in a tariff free world. The UK charges around £5 billion in duties on imports. Some food items attract duties of 15% or more, (as they do in the EU). Cars from the US pay a duty of 10% on their landed value (which includes shipping costs) and VAT at 20%. That’s not free trade, that’s protectionism and it’s the status quo.

Many countries seek trade agreement to compensate for the WTO’s failure. These may be multi-party, such as the North American one NAFTA or bi-lateral, such as the exit agreement between UK and the EU. These come with complications beyond a reduction in tariffs. Some are necessary clarifications on quality and production methods , such as the washing of chicken in chlorine or the use of growth hormones or genetically modified organisms. Others are more political, such as the inclusion of Northern Ireland in the EU for trade purposes enshrined in the wretched Windsor Agreement.

Apples and Oranges

The WTO is also concerned about what it terms “non-tariff barriers” – that is the use of specifications to preclude items from imports. If the UK insisted that all cars imported into the UK were right hand drive that would be deemed a non-financial barrier. The UK doesn’t, because it doesn’t have to. Well informed UK customers prefer to have right hand drive, so that’s what they buy and that’s what manufacturers send to the UK. However there is nothing to prevent a UK customer ordering and receiving a left hand drive vehicle, as some truck operators do.

Where the steering wheel may be is obvious to the consumer. Safety standards, operating systems, environmental compliance and production methods are not. Tracking how services are delivered is even harder. Notoriously, some of the plastic exported from the UK for recycling ends up in the sea, not as a new product. Why? Because recycling plastic is expensive so dumping it is lucrative. If the chances of being caught are slim then a ruthless entrepreneur will cheat. His priority is to make a profit and feed his children. It western environmentalists give him money but don’t track performance more fool them.

Therein lies the whole problem of the “rules based international order.” Unless everyone plays by the rules it’s a harmful fantasy. While some self-regarding altruistic nations may harm themselves for the “global good” (however you measure that) others act in their national interest. The UK’s rulers imposed net zero - US voters chose a president to restore US manufacturing.

China’s abuse of intellectual property law is notorious, as are it’s human rights abuses (not just the Uighurs), as is its dumping of goods onto markets at below cost price These violations of the rules of global free trade are well known yet nothing has been done to prevent it. For all the talk, the economic playing field is not level; the cheats are wining.

Until now.

The Trump Bulldozer

China has been hit with tariffs of 34%. Cambodia 49% and Vietnam 46%. . This has caught their attention and it’s already working. Vietnam is already begging for a trade deal. China has gone the other route and is retaliating in kind. That’s unlikely to work; the US imports (or imported) $430 billion from China while just $144 billion of goods and services went the other way. If the US consumer decides that a $10 dollar item isn’t worth $13.40 the Chinese economy will take a big hit.

That might not be a bad thing The US sees China as the top threat to the USA, as it has been since President Obama looked East and understandably didn’t like what he saw. A trade war may be painful in the short term. A shooting war would be far, far worse. Apple investors will whine about the 9% fall in the stock price but the company is far from bankrupt, it’s just suffered from an increase in the cost of some of its components as Taiwan (home of 60% to 90% of the world’s computer chip manufacture) was hit with a 32% tariff. Presumably the intent is to make chip manufacturing in the US more financially attractive.

Taiwan exists largely due to the reluctance of China to risk World War Three. For years the West has been fretting about the risk of relying upon it for the computer chips that drive the engine room of the knowledge economy (As well as cars, washing machines and mobile phones). President Trump isn’t just talking about the risk, he’s acting decisively to reduce it.

Is Globalisation Smart?

The reliance on Taiwan illustrates one of the problems of the economic thought processes that led to globalisation. For sure Adam Smith would approve of the super efficiency of TSMC and the other Taiwanese chip manufacturers. However he would be less impressed by their growing monopoly and cartel, let alone the aggregation of geo-political risk.

TSMC was established in 1987 at about the same time that the UK started deindustrialising and personal computers were rare. Chip making is a messy industry, the argument ran, and the future is in clean and intellectual design, knowledge and engineering which will underpin the knowledge economy. Scroll forward three decades and the knowledge economy is utterly dependent upon those chips. Where is the value in a research company that can’t function without a Taiwanese chip? Where is the value in a design, product or piece of software that has already been unlawfully copied and reproduced in China?

Yet that’s the reality that we have inadvertently created for ourselves. Davos man is the product of economic logic. Economics is based on modelling and theories. So is physics, but in physics you can test theories in a laboratory and isolate other parameters to ensure that you have a sound result (even if you can’t explain to the layman what a Higgs Boson is). Economics laboratories are not isolated from the rest of the world (unless they’re trivial) so cause and effect are impossible to isolate accurately. (Note, that doesn’t mean that economics is not important and useful, simply that it is not universal and it is not gospel.)

Worse, globalisation is not working as intended. Whether it’s debt laden UK graduates having to compete for jobs with debt free foreign graduates with equally good degrees or unemployed steel makers in Port Talbot, the global economy isn’t delivering as intended. Combined with mass immigration (the free movement of labour being another economic virtue) it’s making life pretty tough for many western people and families – especially blue collar workers and the communities they live in. In the US they voted for President Trump as being someone who would do something about it – giving them back car making to replace the crystal meth industry.

The election result was declared five months ago after an interminable campaign. That gave the markets time to work out and price in what the likely effects of President Trump’s policies. There is no stock market crash because they knew what was coming. Apple’s costs may have gone up, but it’s not in danger of collapse. For whatever reason, the commentariat hadn’t done the same amount of thinking and they have missed the major point; President Trump has changed the rules of global trade.

Creative Destruction

The chart below shows nominal GDP by country for 2025 (Worldbank data).

Ignore the detail, the point is that the US economy dominates, accounting for over 30% of all global economic activity. China aside, the next biggest country (Germany) is just 5% and the chart tails rapidly. If, as Trump and his voters know, the global economy isn’t working for them personally it’s probably not working for a British truck driver or a Vietnamese Nike shoemaker. The current system is therefore failing and the thinking behind it is wrong. (See also the divine right of kings, taxation without representation and the Spanish Inquisition. Powerful humans have an alarming propensity for well argued codswallop to support their beliefs, pretensions and aspirations.)

As the President of the dominant economy, the incumbent of the White House is the one person who has the power to act directly to change things. The current incumbent, President Trump was elected to fix it. As a real estate entrepreneur he not afraid of swinging the wrecking ball to enables the construction of something better.

The Return of The Nation State

Despite the aspirations of Boris Johnson, there is no world king. There are any number of committees sitting, some sheltering under the UN umbrella, who determine aspects of modern life. Unfortunately they’re accountable to no one, they just exist, expand according to Parkinson’s Law. They recruit from the same international pool of super-bureaucrats. (Top examples include Mark Carney, Chirstine Lagarde and Ursula von der Leyen. Peter Mandelson never got close, Boris Johnson was never in consideration). As they never face election they never have to demonstrate the soundness of their policies, let alone justify the collateral damage.

This sounds quite like the EU. You might remember that when the UK voted to leave the various Jeremiahs who predicted disaster were proved utterly wrong. Notwithstanding covid and back to back rotten governments we’re doing OK. Indeed, with only a 10% tariff rate imposed on us (more likely due to economics than the persuasiveness of Two-Tier) we’re doing better than the rest of the EU. (We could be doing better if we had left properly, but that’s another article for another day.)

Why do nation states work? Because there is a chain of accountability, as there are with most successful forms of government. There may or may not be corruption, decision making may or may not be sound and free speech might or might not be constrained but everyone knows who is in charge and who is responsible when things go wrong.

Supranational organisations really started with the League of Nations. Established after the first world war to prevent another one it’s failure became obvious inn 1939. The United Nations has not (yet) ended in World War Three, although that’s more due to the realities of nuclear mutually assured destruction than the UN’s ability to impose peace. (Ask any Israeli or Palestinian). There is no single body of international law nor courts to implement them. Moreover UN member states take their legal obligations with varying levels of sincerity.

If the “international rule based order” can’t look after Jo Public’s economic interest, who can? If you’re American the answer is President Trump. If you’re British the terrifying answer is Rachel Reeves,( or her replacement).

Value Is Not Just About Price

Slapping a tariff on something is not penalty free. The American who wants to buy a Jaguar is going to have to pay 25% more to own a car they can’t pronounce. How much more will depend on how the increased tariff splits between Jaguar’s margins, the American Jaguar dealer’s margin and the buyer’s pocket.

Ludicrously, it might also depend on how much UK taxpayer money Sir Keir Starmer chips in – but that’s another article in itself. That Jaguar Land Rover – owned by Tata. It already receives huge government subsidies, £500M in loan guarantees to build a factory in Somerset as it is the UK’s largest car exporter. Yet its board have decided, or threatened, to no longer sell in the US (25% of Jaguar sales). That’s pathetic for what purports to be a high value brand – but the Tata organisation is exceptionally talented at extracting concessions and cash from the UK government.

It's entirely possible that many American Jaguar customers can afford the increase. They may like to pay it as it makes their status symbol that much more impressive. Their Jaguar used to say to their neighbours “I’m doing better than you.” For a twenty thousand bucks more their new one says “I’m really doing better than you.” That’s good value for those who like that sort of thing. If they can’t afford the tariff they could by a lower spec model, which still sends the same message. (Jaguar F Pace prices in US Range from $57,000 to over $92,000 . The bestselling vehicle in the USA, the Ford F-150 pickup, costs from $40,000 to $77,000). Those who can’t afford a Jaguar due to the tariff will simply have to buy a F-150 and support American manufacturing; “I’m more patriotic than you” also has value. A US Jaguar owner would retort that the US$20,000 he just paid in import duties was also patriotic.

Price is just one aspect of the proposition made to customers. If the customer is wealthy it may not be the most important. People buy cars on a combination of considerations including price, performance, running costs, dealer support, branding, quality, environmental impact, safety and fashion. If Jaguar (or anyone else) is only competing on price they will lose. Rather than whine to the government (yet again) they should improve their offering, which would also garner them more sales in the rest of the world.

Which rather begs the question of why anyone bothers with trade deals to restrict tariffs. They take ages to negotiate and always include unwanted concessions to secure the alleged benefit. Obviously globetrotting politicians love them and international lawyers thrive on them but, as any post-Brexit British fisherman will tell you, the concessions can outweigh the benefits. Worse, a concession to one country on, say, chlorinated chicken can lead to other countries saying that if chlorinated chicken from America is OK there’s should be too. While Palmerston would have sent a dispatch by gunboat putting them back in their box, today’s spinless modern politicians and their jelly-fish advisers would apologise, concede and probably pay damages. They forget who elected them and who pays them.

Post Tariff Britain

The UK needs to adjust to the new economic reality imposed by the world’s dominant economy. They need to adapt and overcome the frictions. In the US car market all imported cars have been hit with the same tariff. If JLR pulls out, as it says it will, BMW, Porsche and Mercedes will fill the void and weak management will again have cost British jobs. They’ll blame Trump, but they’ll be wrong. President Trump was elected by the American people, that is the American market. While it may be the case that blue collar workers don’t buy JLR but not every imported car driver voted Democrat.

The European elite thinks that President Trump is a one off and that it will all be better after the next election. That’s delusional. It’s entirely possible that the next US President will share the Trump / MAGA agenda and it’s entirely possible that it will be working for America. JD Vance is the clear favourite to be the next president.

If MAGA is working for America countries with failing economies should take a long, hard look – it might work for them. Instead our lacklustre Prime Minister has threatened to retaliate against America. Trump must be terrified: US GDP is about $30,000 billion. UK exports to the USA are just $46 billion, 0.15% of US GDP. It’s a rounding error. Starmer could have threatened to sell Diego Garcia to an ally of China, but he’s already done that.

So Starmer is offering JLR “support” while hiking national insurance, driving up the price of electricity with the ludicrous net zero policy and he’s imposing impossible electric vehicle targets on the car industry. He’s proving Ronald Regan correct – the most dangerous words in business are “I’m from the government and I’m here to help.”

Two Tier should wake up, smell the coffee and realise that the British people voted to return to being a nation state in 2016. He needs to grasp that President Trump has just ended the economic world order and Davos man (for the latter Trump should definitely get a Nobel prize). He needs to think that though. While he does, rather than seeking to reintegrate with the EU and prop up a failing company with money he does not have he could scrap net zero, use the savings to cancel the NI hike and slap some import tariffs on the French until they stop the boats.

Of course he can’t; he is an internationalist Marxist lawyer who has no business running the United Kingdom. He won’t be after the next election, which can’t come soon enough.

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