Will post-Brexit Britain be mercantilist?

Writing for The World Today, Thomas Raines, Head of the Europe Programme at Chatham House, recently outlined how with Brexit and the “end to the liberal consensus”, UK foreign policy was set for a period of substantial change. This basic premise is hard to disagree with: the British foreign policy of yesterday will not be identical to that of tomorrow. But his expectations for the future could not be more wrong.

According to Raines, since Theresa May’s ascension to prime minister, the government has adopted scepticism towards globalisation, foreign aid, climate change, and – shockingly – has had a “positive” attitude towards the Trump administration.

Despite this scepticism, Britain remains one of just five countries to meet the UN foreign aid target, has re-affirmed its commitment to the Paris climate change agreement, and continues to see global goods exports rising, while foreign direct investment from Asia is at its highest level since 2008. Meanwhile, the suggestion the UK could maintain anything but a positive attitude towards its closest ally is staggering – however, the UK has shown its willingness to stand up to Trump. Here are three recent examples of UK disagreements with the Trump administration: Syria, immigration, and trade tariffs.

All this, Raines asserts, is increasing the likelihood of the Conservative party embracing a mercantilist foreign policy as it begins to echo “the more nationalist tones of UKIP”.

Mercantilism is a foreign policy approach that views world trade as a zero-sum game, in which you’re either a winner or a loser. A mercantilist state will raise tariffs to protect its own industries while attempting to generate trade surpluses, thus weakening its rivals. 

Yet who is calling for Britain to resume a trade policy that it resolutely rejected with the 1846 repeal of the Corn Laws? The 2017 UKIP manifesto for example calls for tariffs to be lowered ‘wherever possible’. That doesn’t sound particularly mercantilist to me. Free trade proponents are largely united behind leaving the European Union with several organisations having been founded to make this case such as the Economists for Free Trade and the Initiative for Free Trade. Finally, high profile Eurosceptics such as Boris Johnson, Liam Fox and Daniel Hannan are again united in their belief in free trade. If the Conservative Party is becoming mercantilist, it is neither clear who is behind that movement nor that such a shift exists at all.

Since before the 2016 referendum, Europhiles have viewed the prospect of Brexit as a desire to raise the drawbridge and retreat into isolationism and protectionism. But clinging to this assertion is both wrong and unfounded.

Eurosceptics celebrate Britain’s longstanding tradition of free trade, which the UK has defended robustly ever since 1846. The commitment was re-affirmed following the second world war when Britain led efforts to create the International Trade Organisation which would be succeeded by today’s World Trade Organisation, a body in which Britain will shortly take its seat. This commitment has been central to British policy for nearly 175 years, and it is inherent to the contemporary Conservative Party.

Yet it is not something so inherent to Europe. While Britain consistently defended its free trade policies throughout the 19th century, the opposite was true in Europe where protectionism became the rule of the day and tariffs rose at the expense of Britain. That European tradition for protectionism is echoed today through the EU’s customs union.

The customs union unites EU members through common external tariffs, meaning customs duties are charged by one bloc, rather than by individual states – a process that facilitates the movement of goods within Europe. But the customs union is frequently referred to as a “protectionist racket” – and with good reason. The union imposes a range of high tariffs on imports from outside the EU. This protects a range of European industries from external competition but leads to higher costs for consumers.

One exception, however, is that the customs union allows developing countries to export raw materials to Europe without paying tariffs, but these are largely products the EU cannot produce anyway, so in this case imposing tariffs would a lose-lose. This means that developing countries can export cocoa beans, tea leaves, and coffee beans to Europe, but should they want to export processed goods they would face substantial tariffs. The imposition of these tariffs restricts growth domestically and the appeal to invest, and is designed simply to protect long-established European manufacturers – regardless of what’s best for consumers.

Far from Brexiteers being inclined towards mercantilism, the very opposite is true. Whereas continental Europe has a long tradition of mercantilism – which it defends to this day – Brexiteers want to see Britain making the case for free trade again.

So, if the Conservative party becomes tempted by mercantilism, it will not be Brexit supporters who lead it there, but the ardent supporters of “fortress Europe” who continue to scheme for Britain to remain in the customs union – or even worse, the EU in its entirety.


Written by Jeremy Hutton

Jeremy Hutton is a Policy Analyst at the TaxPayers' Alliance. He graduated from the University of York in 2018 with an MA in International Relations and is passionate about British foreign policy issues pertaining to trade, development and defence.