Hamish McRae: Population trends mean our trading future lies with US

This is going to be a week where we may catch a glimpse of things to come in three areas: the relationship between the UK and Europe, between the UK and the US, and finally between the US and China.

Here, we are inevitably preoccupied by Brexit, and it seems we do at last have a plan. Quite how Europe will respond to that we’ll see, and a summer of disagreeable negotiations looms. The Government, now minus David Davis, has acknowledged that it should seek a deal that is, as far as possible, acceptable to the 48% as well as the 52%, and that’s progress. Now we will start to catch a feeling for the type of relationship that Europe seeks, bearing in mind that this relationship will change over time. Whatever the deal is, or isn’t, things will look very different in 2030 and even more so by 2060.

The reason for that has nothing to do with these negotiations. It is simply that for demographic reasons alone the balance of power between Europe and the US will have shifted further over the next generation.

I have been looking at some data from the European Commission and Jefferies International, which shows that the size of the working age population of the EU ex-UK falls by more than 5% by 2030, and nearly 15% by 2060. By contrast, that of the UK rises by nearly 5% by 2030 and nearly 10% by 2060.

Now look at the US: the Department of Labor projects that the workforce there will increase by some 10% by 2030 and some 18% by 2060. Demography may not be destiny, but the size of a working population is massively important when looking at future economic growth. As far as the UK is concerned it seems almost inevitable that trading relations with the US will increase, while those with Europe will decline.

That is not an argument for a so-called hard Brexit. Far from it. The comment of the past few days that I have found most telling came from Ralf Speth, chief executive of Jaguar Land Rover. He warned that he would move production out of Britain if that were the only option “to save the company”.

I sat next to him at dinner some years ago and was entranced by his description of how, as a child in Bavaria, he had watched Jaguar winning year after year at Le Mans — a time when BMW was in dire trouble. Then the positions were reversed. He had a successful career at BMW, and then had the opportunity from Tata to bring Jaguar, with Land Rover, back to pre-eminence. He felt it was a once-in-a-lifetime chance he had to take, and he has brought the group a long way. So his was not the comment of a bureaucratic multinational executive, or some head of an employers’ lobby group. It was of a great automotive romantic who has cast his lot with this country, and it deserves huge respect.

So, although this shift of power from Europe and towards the US is not an argument for a hard Brexit, it is an argument for seeking closer trading relations with America. We may learn this week a bit more about that. We should expect no special favours from Donald Trump: in following his “America First” disruption of the global trading regime, he is part of a tradition of US protectionism that goes back to the 19th century but was most destructive with the Smoot-Hawley Tariff Act in 1930. Since it is broadly accepted that this legislation exacerbated the Great Depression, the US has led the general move towards free trade, or at least freer trade, since the Second World War.

So we should not be thinking in terms of a US/UK trade deal as such. If, however, Donald Trump’s visit to the UK later this week opens up lines of discussion as to how unnecessary bureaucratic barriers to trade in both goods and services can be lifted, then this could be very positive for the longer-term. This President will not be there forever. But the American economy will — and our economy will tilt towards it.

That leads to the final point: from a global perspective what happens between the US and UK is a sideshow; what happens between US and Europe is bigger; but what happens between the US and China is biggest of all.