What Trump should say and do about Brexit

Recent events in Britain, where a majority of voters have chosen to leave the European Union, and the United States, where free-trade skeptic Donald Trump has become the presumptive Republican presidential nominee, suggest that the world may have to hit the pause button on the march toward globalization and develop a new world trading agenda instead. One way to do that could be to start with a new trading block that includes the U.S., Britain and few key allies such as Canada, Australia and New Zealand.

These five nations share similar industrial and culture heritages, do not engage in currency manipulation, have comparable investment and taxation policies, and have historical strategic ties that bind them together. Canada and the U.S. are already in a free trade pact as part of NAFTA which, unlike the European Union, creates no permanent bureaucracy or established parliament to compete with national governments.

So while NAFTA eliminates most tariff and trade barriers, it doesn’t subordinate local sovereignty in any significant way – an important hot spot for the millions of Britons who supported Brexit.

{mosads}History tells us that slipping back into a world of protectionism does not offer a recipe for growth, so Trump needs to offer an alternative solution – one that doesn’t further alienate him from his own party, which traditionally has always been pro-trade. His strong views on current U.S. trade deals or potential deals such as the Trans-Pacific Partnership have energized his supporters, particularly the U.S. middle class who feel they have been left behind.  

Whether he’s right or not, he has argued that these deals promote the abandonment of the United States in the search for cheap manufacturing labor in places like Vietnam, Cambodia, Mexico and other developing countries around the world.

Most serious students of public policy, as well as big business, have ridiculed his views, but the Brexit vote is further indication that a change is on the horizon in democracies around the world, and governing elites have to wake up.  

As Henry Kissinger noted in a recent piece in The Wall Street Journal, “…the multilateral approach based upon open borders for trade and the movement of peoples is increasingly being challenged and now an act of direct democracy intended to reaffirm the status quo has rendered a damning verdict. However challenging this expression of popular sentiment, ignoring the concerns it manifests is a path to greater disillusionment.” 

Even though Trump has vowed to re-negotiate NAFTA, it could still be a good starting point on which to model a new trading block. The establishment of a new trading block made up of the United States, Britain, Canada, Australia and New Zealand would give him something substantive to offer as an alternative to the current NAFTA structure.

This plan would also reassure those in the Republican Party that he is getting serious about the presidency, and calm the minds of business leaders by offering up a potential trade agenda in the event of his election in November. The political fallout from his own supporters would be minimal, as these five countries have always had a special geopolitical relationship forged from a common language, values and traditions.

This option of a new (and powerful) trading block perhaps most benefits the UK, which has a lame duck prime minister and lacks a credible plan for dealing with leaving the European Union. A larger alternative trading block could be a game changer in its negotiations with the EU, which has vowed to resist Britain’s desire for open trade but closed labor borders, effectively ruling out a trade deal like the one the EU has with Norway, at least in the short term.

The common refrain from both sides of the Atlantic is that globalization has had a punishing impact on the middle class. The economic benefits of this new type of trading block might be more incremental than transformative, but it could satisfy the political concerns that are growing across western democracies.

History has taught us that when governments get too far ahead of their electorates – or too far behind – they must course correct quickly, or pay a steep price.

Coates is a member of Hill+Knowlton Strategies’ Global Council and serves as president and CEO of the Americas region, which includes operations in the United States, Canada and Latin America.