New UK International Trade Secretary Bullish on Post-Brexit California Trade & Investment

Dan Rutstein: The United States and the United Kingdom are blessed in many respects. One of the ways in which we are blessed is that we have produced great leaders in critical times. One thinks of Churchill, Roosevelt, Reagan, and Thatcher—and that’s just to name four.

We are now entering another defining moment in the UK’s history: The Brexit vote has been taken, and the result is in. I believe it was a courageous decision that should lead to many more global opportunities, though obviously, there are some very strong challenges in the short-term.

It is against this background that Dr. Liam Fox was appointed as the Secretary of State for International Trade and President of the Board of Trade. This is a very critical cabinet-level role. He has a broad portfolio of responsibilities to increase global trade. It may not be a coincidence that Liam’s first visit is to the US.

In many ways, Liam was born for this position. His background is that he trained as a medical doctor in 1992; he became the MP for North Somerset, and then had a series of Shadow Cabinet responsibilities, including Shadow Secretary of State for Defense and shadow Foreign Secretary. He is also the former chair of the Conservative Party, and importantly for this meeting, one of the leaders of the Leave campaign.

Liam has always been a strong supporter of an independent, free-trading UK—engaged with the world, but with a particular focus on strengthening the special relationship between the US and the UK. We at the BABC look forward with confidence to Britain in the future—free to enter into new trade agreements, and increasingly trading with the world. 

Liam Fox: Some time ago, I traveled to see David Cameron. We were talking about the Conservative Party and he said to me, “I regard myself as a liberal conservative. What kind of conservative do you think you are?”

I said, “Well, David, I regard myself as an unreconstructed, free-market, Thatcherite, Unionist, Euro-skeptic Atlanticist.” All of those elements are likely to guide how I view the international environment. 

It’s of course essential, as an Atlanticist, that one of my first visits is to the United States—and it was essential to come here to the West Coast, because the UK is the second-biggest global investor in California, and 78,500 Californians are employed by British companies. In terms of the global economy, the GDP of the LA Metropolitan Area is bigger than that of Saudi Arabia.

One of the first things I want to do in my department is to get us away from our obsession with borders and maps, and to start thinking about markets. It’s where the biggest markets are that we need to be—not dividing our time up amongst countries.

We need to get away from a ridiculously cartographic view of the world into a functional view of the world that understands that making money depends on getting access to the most important and the biggest markets. That will be a reorientation in my department as long as I am head of it.

It’s unbelievable, but it’s been only four weeks since we had our referendum in the UK, where we experienced a transformation in our politics. Let me tell you, the fact that we had a referendum, a leadership election, a new prime minister, and a new government in that short period of time was the envy of our friends in Washington, and of a lot of American politicians who worry about the endemic paralysis that the current system produces.

The referendum result in Britain was brave and historic. I say “brave” because the political/media/economic establishment threw every threat conceivable at the British people—from economic Armageddon to war on Europe and incipient genocide—most of which didn’t have a lot of traction because they weren’t terribly credible. Nonetheless, the British people took a very great decision.

This morning’s GDP figures were much higher than expected in the second quarter, showing that the public—the real economy, rather than the sense of the economy—won out in that period.

I say it was a “historic” decision because it is going to change the shape of how European—and, I think, global—politics will operate.

I believe the 20th Century will come to be regarded as the “century of the bloc”—that is, the geographic bloc. But the world in which we live today does not require us to do business with countries that are geographically proximate—only functionally similar. Britain has now taken a step toward understanding the reality of the era of globalization.

It’s a transformation that most of our European partners will have to make at some point, and the longer they take to make that transformation, the harder it will be for them to do so.

I regard what we’ve done as a tremendous opportunity.

The new government will be an absolutely upfront champion of global free trade. I’m not going to say anything about viewing the American election process from outside, but I really would like to hear from the United States, and its leaders, a commitment to free trade.

If the US isn’t going to lead the concept of global free trade and argue for it, who is going to do so? We will—but we need America with us in that role. We need to be hearing from politicians that free trade will increase global prosperity; that free trade produces greater competition, competition produces innovation, and innovation produces excellence and greater returns over time.

When you allow people to trade their way out of poverty, not only is that infinitely better than giving them aid as conscience money, it also allows them to determine to a far greater extent their own destiny. It also drains the swamp of some of the economic problems that are likely to give rise to security problems in the long term.

We need to see free trade as the answer, not the problem. I hope all of you in this room will be making that case; we will, as a new government.

Let me tell you what our new department actually is.

Britain has not had a trading or negotiating department for 43 years. The nice thing about that is, you get a blank piece of paper and someone says, “Please draw yourself a department.” The other thing is that you have to find all the people to get into that department.

I’ve been running it for two weeks, and I’m very lucky to be served by some extraordinarily talented people who have taken us, in a fortnight, to a level of organization that I’m not sure I believed possible.

We are effectively putting in one place the trade and economic elements from the Foreign Office, UK Trade and Investment (UKTI), the Defense Export Service Organization (DESO), and Export Finance from the Treasury. This makes, in my view, a very logical and very powerful department.

The functions of the department are: trade negotiation; foreign direct investment in both directions, which is extremely important for that free-trade element; and export promotion.

In terms of trade negotiations, we have to recognize that we will be leaving the European Union. The government has not yet determined an exact time to trigger Article 50—the means by which we leave—because we want to do it when it suits us, and not when it suits the European bureaucracy. My guess is that it will be around the turn of the year.

That means that Britain will be aiming to leave the European Union two years later, at the very beginning of 2019. I want to use all of that time to maximize the discussions I can have with other countries, and to prepare the department and Whitehall for that departure.

This is a political decision by the British people to take control of our own destiny. It’s not about not liking the European Union or our European partners. It’s very important that they understand that we intend to disaggregate ourselves in a way that causes as little disruption to the pattern of trade as is humanly possible.

The British public has said they don’t want uncontrolled migration from the European Union. That doesn’t mean that people from the European Union won’t be coming to Britain, where there are jobs available for them. We are simply taking control back of the process, and I hope that they understand that.

The United Kingdom is in a good position when it comes to getting a free-trade agreement with the European Union, because they have a massive trade surplus with us, and we a deficit with them. The European Union countries sell 70 billion times more goods into the UK than we sell to them, so it’s really in their interest that they get a trade agreement quite quickly. Otherwise, their exporters face big problems.

I’m quite confident that we’ll be able, in the real economy, to get some of those agreements reached.

When it comes to the United States, if the EU is 42 percent of our business, the US is 20. 20 percent of British exports come to the United States alone. 25 percent of our foreign direct investment in Britain comes from the United States. 700,000 British citizens live and work in the United States, and 1.2 million Americans are employed by British companies in this country. That is a very close and interdependent relationship.

In my talks in Washington, I didn’t come across a single person—neither a politician nor an administrator—who didn’t understand the necessity of maintaining a very open relationship between our two countries, and why it is in our mutual interest to reach a negotiation as soon as possible.

We are prevented by EU law from technically “negotiating” a trade deal during this two-year period. But mind you, “negotiation” is a word. “Scoping” is also a word, “discussion” is also a word, and many of them lead to the same endpoint. Round any obstruction is always a way.

Therefore, our two big objectives are getting our European trade deal done and getting our American trade deal done. Then we’ve got a lot of opportunities to roll other EU treaties with third countries over to bilateral treaties.

I don’t share the terrible worries of some about our ability to negotiate trade treaties. Treaties, whether they’re trade, or security, or anything else, occur when they’re in the mutual interest of both parties to have them. Mutual self-interest is a very good driver for any process at all. As we move into this period, I’m both optimistic and confident about what Britain can do.

I’m confident for a number of reasons.

The first is that foreign direct investment into the United Kingdom is pouring in. Last year, we hit a new record: 21 percent of all investment in the European Union came to the UK. Last week, we saw the record inward investment of all time: £24 billion in one deal from SoftBank into Cambridge. And last night, we heard the GSK announcement that they’re putting a third of a billion back into the UK economy.

We’ve seen a lot of money coming into the UK, and we should be asking ourselves: Why?

The answer lies in the strong fundamentals of the UK economy, and the cultural and legal advantages we have.

Contract law is extremely important when you’re putting money into an economy. Money will go to where money can be made and money can be moved; the UK allows both. Our contract law gives people certainty that when they put their money in, they can take it back out again if they want, and it’s overseen by an utterly independent judicial system.

We have a low-tax economy compared to most of our European competitors. We have a low-regulation economy, a high-skill economy, and much lower levels of industrial disruption. We have some of the best universities in the world—four of the top 20 in our country. We have a strong investment base that’s actually increasing in strength all the time.

Even before we take into account the quality-of-life factors, all of these economic factors are utterly independent of our membership in the European Union, and will be there once we are outside. Because of our free-market orientation, I expect the United Kingdom to continue to have that inward investment pouring into our country, which will be hugely to our advantage.

There’s another reason I think Britain will be a great destination for inward investment. When I talk to investors overseas, I say, “Remember, if you think there’s a risk to Britain being outside the European Union, think about the relative risk. Think about the risk of being inside the Eurozone—with an unresolved Euro crisis and with a Greek crisis, which will be nothing compared to an Italian banking crisis, should it come. The United Kingdom has separated itself from the worst of those risks.”

Britain’s natural orientation is that we are an outward- and forward-looking nation. Now we’ve taken the decision to make ourselves even more outward- and forward-looking—to shake off the shackles of a European Union, which, in my view, is far too introspective and spends far too much time dealing with its regional problems rather than its global opportunities.

The British people have shaken that off, and in a very brave and historic move, have said, “We want to be part of that global economy. We do not want to be linked to a geographic bloc; we want to be out there taking the advantages that our economy gives us, and above all else, that our people can produce for us.”

Politics is very binary: You either shape the world around you, or you are shaped by the world around you. The British people have taken one of the most important decisions in our history: that we once again want to shape the world around us, including our global economy.

I can’t think of a better, more optimistic, and more confident time to be a British citizen. And to be a British politician—well, that’s being paid for your hobby.