Can the election of Donald Trump be a major opportunity for Liberal Democrats? Quite possibly, though the jury is still out. In fact I’ve just written a short history of British Liberalism which ends with that question.
I’ve argued in the book that British Liberalism has made the political weather when it has mobilised public opinion in favour of a political reset, or against a particular threat. Liberals have campaigned best when they have attacked powerful vested interests and damaging concentrations of power – when they have urged constitutional reform (the nineteenth-century Reform Acts) or stood against tariffs and sectional economic policies (the Corn Laws; Tariff Reform). But it’s not always easy to convince voters that constitutional and structural issues should matter to them. Timing is always central to political success.
In the nineteenth century, Liberals’ favourite slogan was ‘Reform’, which was shorthand for changes to the distribution of parliamentary seats and to the franchise. Reform was demanded for several reasons, particularly to stop high taxes and government oppression of minorities. It was a call for a new, more responsive politics.
Nigel Farage’s Reform party has stolen Liberal clothes. Of course, Farage is no liberal. But he has persuaded people – 28% of the electorate according to the latest poll – that his is the only party that will overhaul the current tired political system. This pitch used to be Liberal territory: Jo Grimond’s and then Paddy Ashdown’s. Now the media often presents Farage as the only real critic of the two main parties.
Does Trump offer Liberal Democrats a way of challenging this framing of British politics? Populists like to argue that their alternative visions have never been properly implemented. Brexit, they say, was a brilliant idea, ineptly executed. Now, Trumpism may be tested to destruction. Trump and Farage preach the gospel of sovereignty and isolationism. They argue that countries will prosper best if they focus narrowly on their own interests. Many voters have found this persuasive, particularly because of the immigration issue.
If Trump continues as he has started, on foreign policy and on tariffs, the world’s liberal democracies will have no choice but to organise against him. They will need to embrace international cooperation: to work together to keep trade barriers between themselves as low as possible, to find the money to invest in their own security, and to show that these two policies go hand in hand.
Politicians who recognise this new reality early will benefit. Keir Starmer, ever the managerialist, bets that he can do a deal with Trump, but any worthwhile deal may involve separating Britain from its primary European markets, accepting lower American food standards, or giving tax breaks to American tech companies. Ed Davey is shrewd to demand Commons scrutiny of whatever emerges.
International cooperation will become more sellable politically. Of course this is a historic Liberal cry, but we are often told to tone it down because the media, and the Reform and Conservative parties, are fixated with sovereignty arguments. We need to counter them. We need to say more boldly that a politics of international cooperation is the true politics of patriotism.
We should also connect Liberal Democrat localism with that internationalism. We have historically rejected talk of absolute national sovereignty, and urged devolving some powers down to localities while sharing others internationally. Institutional power, while potentially valuable, is also potentially dangerous; it requires constant scrutiny. Nigel Farage claims that British politics is not working. We should say that more localism, and better funded localism, is needed if the legitimacy of the British political system is to be strengthened. Local government desperately needs a new financial settlement. Kemi Badenoch is wrong: fixing church roofs should not be trivial. Democratic decision-making must be shown to work at every level, if populist attacks on our whole political system are to be defeated.
For years, populists have attacked liberalism by misrepresenting it as obsessed with defending free markets and wokeness. In fact British political liberalism has never been driven by any economic theory, classical or otherwise. It has always emphasised political reforms, challenging excesses of power and the dominance of particular vested interests. Current threats to British prosperity and social harmony require a political response. Liberal Democrats have the tools with which to do this. Sometimes big bold messaging is best. The 2024 manifesto crammed detail into twenty-two chapters. If we can focus instead on a few key principles, it might not be necessary to fall off paddleboards and ride toy horses in Henley in order to attract national attention.
* Jonathan Parry is a member of the Liberal Democrats and a retired university History teacher. His “Short Histories: Liberalism” is published by Agenda Publishing.
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Changes in status: Local Elections wrap up
What should the Liberal Democrats stand for?
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15 Comments
Might the L. D. Party adopt root policies of Social Liberalism instead, as seems to be currently the case, of Neoliberalism and so combine consideration for the vulnerable with the encouragement of positive socio-economic initiatives and drive?
Lots of good stuff but I particularly applaud:
“We need to say more boldly that a politics of international cooperation is the true politics of patriotism.”
Loud and clear.
An interesting summary. And to judge from the published book, from someone very familiar with the history of liberalism.
There’s one thing I’d question though. I don’t think internationalism is in general as difficult to sell as Jonathan is making out (certainly not in today’s World). The problem is that, for at least the last 10 years, the LibDems haven’t been trying to sell internationalism: They’ve been trying to sell EU membership, and confusing that with internationalism. In reality, EU membership is just one particular form of internationalism – and one that many of us would feel is flawed and not really suitable for the UK. I’d argue it isn’t even true internationalism, but more an exclusive regionalism – excluding non-European countries. If the LibDems focused or on promoting genuine internationalism (in the form of cooperation and respect between countries for the good of all), maybe we’d have more success?
The “Reform” which we need has to be on the international level as well as the domestic. The ideas of Keynes are somewhat out of fashion now but LibDems shouldn’t forget that he was a Liberal too!
Trump, or rather someone on his team who understands economics, if such a person can be found, might want to revisit the idea that he had regarding the regulation of international trade.
Wiki explains it as follows:
“The International Clearing Union (ICU) would be a global bank whose role would be the clearance of trade between nations, similar to a trade exchange with every country as a member. All international trade would be denominated in a special unit of account, the proposed bancor. The bancor was to have had a fixed exchange rate with national currencies, and would have been used to measure the balance of trade between nations. Goods exported would add bancors to a country’s account, while goods imported would subtract them. Each nation would be incentivized to keep their bancor balance close to zero by one of two methods: in the case of an excessively positive bancor balance, part of their surplus would be taken and applied to the Clearing Union’s Reserve Fund. In the case of an excessively negative bancor balance, their currency’s exchange rate would be lowered, making imports more expensive and exports cheaper.”
Joe , and many modern mainstream economists, would disagree with Keynes, claiming that exchange rates are not the issue. He has to be right though. His ideas make perfect sense.
It should be obvious that American consumers with a GDP per capita of $86,600 versus Chinese consumers with a GDP per capital of $13,445 are going to be able to buy a lot more from Chinese producers than vice a versa. The same applies with any low income country vis a vis developed economies.
Exchange rates have little impact in a world of floating currencies. There is, however, a problem of capital flow (so called ‘hot money’) destabilising investments.
Mark Carney in a 2019 speech at Jackson Hole suggested that in the medium term — alongside all countries seeking to reduce their reliance on hot money flows denominated in dollars — the IMF should set up a global fund to deal with capital flight Mark Carney calls for global monetary system to replace the dollar
“Pooling resources at the IMF, and thereby distributing the costs across all 189 member countries, is much more efficient than individual countries self-insuring,”
In the longer term…the solution was to create a multipolar global economy rather than waiting for China’s renminbi to challenge the dollar.
He suggested more thought should be given to creating a global electronic currency that could act as “synthetic hegemonic currency . . . provided . . . perhaps through a network of central bank digital currencies”.
This could “dampen the domineering influence of the US dollar on global trade”, meaning that US shocks would not reverberate around the world as they do now.
“The deficiencies of the international monetary and financial system have become increasingly potent even a passing acquaintance with monetary history suggests that this centre won’t hold.”
“It should be obvious that American consumers with a GDP per capita of $86,600 versus Chinese consumers with a GDP per capital of $13,445 are going to be able to buy a lot more from Chinese producers…”
The lower GDP per capita figure for China means they produce less per capita and therefore there are fewer goods and services to buy. There may well be an imbalance in trade it’s not because of GDP per capita. Keynes had it right. It’s the relative exchange rates that cause the imbalance.
There is quite a disparity in the EU too in terms of GDP per capita. It doesn’t mean that Germany, with a high GDP per capita, is going to run a trade deficit with Romania which has a much lower GDP per capita. It’s the other way around. The EU would probably work much better if that were the case, though.
Both Germany and Japan have free floating currencies – the Euro and the Yen.
China (as a developing economy) has a managed floating exchange rate Tools That China Uses to Manage the Yuan It pegs its currency, the yuan (or renminbi), to the U.S. dollar. it’s only allowed to trade in a range, which limits the upward price movement of the currency. There are also strict capital controls in place, which limit the free movement of capital out of China.
Countries that spend more than they save often run trade deficits. The U.S. has low national savings and high consumption, so it imports a lot. Countries like Germany, Japan or China tend to save a lot more, leading to trade surpluses.
If a country produces goods efficiently and cheaply, it becomes a big exporter.
In the USA, higher relative labour costs or inefficient industries can make domestic goods less attractive, leading to more imports. Fast-growing economies like the US will tend to import more because consumers and businesses want more stuff and the US dollar as the International reserve currency tends to attract substantial capital inflows keeping the dollar relatively strong against other currencies.
Ultimately, the big exporters have all developed in the same way – cheaper labour in the case of the Asian tigers and wage suppression combined with cheap Russian energy and raw materials in the case of Germany (even when they were using the Deutschmark as their currency).
“If a country produces goods efficiently and cheaply, it becomes a big exporter”
Not necessarily a big net exporter though. When the country becomes successful, others will want to invest their capital there creating a surplus in the capital account there will be an equivalent deficit in the current trading account. This is just simple arithmetic. If the country doesn’t want a deficit in its trading account it can’t allow this to happen.
Switzerland attracts lots of overseas money but it won’t allow all that to be converted into Swiss francs. The central bank buys it up the surplus and has a store of some $800 bn of foreign currency. This is obviously far more than it needs to smooth out any short term fluctuations in the level of the SF.
Currency manipulation is meant to be against IMF rules but all the big net exporters do it in one way or another. Germany could quit the euro and have a stronger currency. The establishment of a Sovereign Wealth Fund (Norway, Singapore, Saudi Arabia, even Australia) is another way to export capital and so prevent the capital account going into surplus.
So it looks like it’s you vs Keynes on this one!
Keynes supported “managed flexibility” — where governments could influence their exchange rates to stabilize the economy. He opposed both completely fixed and completely floating rates.
This idea led to the Bretton Woods system (1944), which he helped design.
Keynes proposed an International Clearing Union (ICU) and a new supranational currency called “bancor”. Countries would have adjustable exchange rates (not rigidly fixed but not free-floating). A global institution would help manage balance-of-payments imbalances.
Both surplus and deficit countries would be encouraged to adjust, sharing responsibility for global imbalances.
He believed unstable exchange rates could hurt employment and economic stability.
Keynes wanted exchange rate policy to be subordinated to the goal of full employment rather than keeping prices or external balances fixed.
Keynes argued for a middle ground — not rigidly fixed, not completely floating — where countries could adjust exchange rates to maintain internal stability, especially employment, and avoid harmful international imbalances.
The UK and Norway both had a North Sea Oil bonanza in the early eighties. Norway chose to invest that surplus in a a Sovereign Wealth Fund the UK did not. Who made the wiser decision?
@ Joe, Possibly the UK could have had a SWF. However, the population of Norway was about 4 million in the 80s whereas it was a factor of 15 or so higher in the UK. So, you can’t directly compare the two economies. Did we want to lower the value of the pound to keep British Leyland and the traditional industries competitive? Most people on this bog would say ‘no’ – I dare say.
It doesn’t really matter whether or not Keynes favoured floating or fixed exchange rates, he correctly understood that the only way to fix a trade deficit, and by the principle of the twin deficits, a budget deficit too, was by exchange rate adjustments.
It’s pity that neither Reeves nor Trump understand this.
The simplest way to lower trade imblances is to allow wages in surplus countries to rise naturally in line with increasing productivity rather than artifical wage suppression and/or demand stimulus in the case of Germany via public investment. This allows home consumers to buy up domestic production and reduces the need for exports.
There are a number of ways for deficit countries to address persistent and excessive trade deficits:
. Invest in export industries: Support sectors like manufacturing, agriculture, and tech to make them more competitive globally.
– Negotiate favorable trade agreements that open up foreign markets.
– Encourage demand for local goods abroad.
– Encourage domestic production of goods typically imported.
-Tariffs and quotas (carefully applied): Raise import taxes or set limits—but this can lead to retaliation or higher prices for consumers.
– Offer tax breaks or subsidies to businesses that source domestically.
– A weaker domestic currency makes exports cheaper and imports more expensive, which may or may not help correct imbalances. Central banks can influence this via interest rate changes or direct currency market intervention.
– Reduce government deficits: Big public deficits can fuel import demand.
– Tighten monetary policy: Higher interest rates can reduce consumer demand, including for imports.
– Make domestic businesses more competitive through better education/training and Infrastructure investment, R&D funding & Digital transformation (as the Biden administration started to do)
Some trade deficits stem from deeper issues, like lack of natural resources or aging populations. In a highly interconnected world, imports aren’t always bad—they may be part of producing exports.
The US/China trade war will not be solved by exchange rate adjustments to weaken the dollar against the Yuan.
China has for decades relied heavily on low labour costs to attract foreign direct investment (FDI) and boost exports. Keeping wages low helped make Chinese goods cheaper and more competitive globallyand attract multinational corporations looking for low production costs.
Rapid wage growth can drive inflation. To maintain macroeconomic stability, the Chinese government intervenes to moderate wage increases, especially in lower-skilled sectors. However, China is currently experiencing deflation and some wage inflation may be beneficial for their economy.
China limits independent labour unions. Strikes and protests are often quickly shut down or heavily monitored. This structure suppresses workers’ ability to organize for higher wages or better conditions.
Chinese policymakers often prioritize high employment over high wages, especially in rural or economically underdeveloped regions. The thinking is: Low wages → More jobs → Less unrest
Social stability is a top political goal, and the government often sees rising unemployment as a bigger risk than low pay. A huge supply of rural migrant workers puts downward pressure on wages.
The Chinese state has historically directed investment into heavy industry; Infrastructure and technology, rather than directly into household income or consumption, which means wage growth doesn’t always keep pace with GDP growth.
These are the nuances of wage suppression. A complex issue rooted in China’s economic development strategy, political priorities, and social stability goals.
“The US/China trade war will not be solved by exchange rate adjustments to weaken the dollar against the Yuan ……….The simplest way to lower trade imbalances is to allow wages in surplus countries to rise….”
This is effectively the same thing. If the wages of Chinese workers rise, or there is a general tax reduction, at the same time as the Yuan/Renminbi forex rate is kept constant against the dollar, they will have more purchasing power in terms of US dollars. Just as they would if the currency was revalued or the US dollar was devalued.
It’s not just China that runs a big surplus against the US so it would make more sense to weaken the US dollar to make US exports more generally competitive.
To run a continued export surplus, or even to reduce a continuing deficit, requires the government to both hold down the value of the currency and restrain domestic demand using the tax system and possibly wage controls. This diverts production away from the domestic market and towards the export market.
For three decades after WW2 the UK experienced sterling crises. Devaluations were undertaken twice during the Bretton Woods years – by 30% in 1947 and by 14% in 1967 to a rate of $2.40 to the £. Sterling depreciated further both during the 2008 Financial crisis and again after the 2016 Brexit referendun – trading in recent years at around $1.30. Despite these devaluations, significant UK trade deficits with the EU bloc (its main trading partner) have remained.
Weakening the US dollar threathens the exorbitant privilege of reserve currency status for the USA. The US wants the production of China, Japan, South Korea, Canada, Mexico and the EU but does not want to build up debt or weaken the purchasing power of its currency in exchange. The US tariff policy does, however, appear to be weakening the dollar while falling bond prices are pushing up interest rates. The Trump policy of big tax cuts and deregulation appears to be the plan for offsetting the impact of tariffs. That policy seems destined to widen US budget deficits requiring yet more external financing of US public spending.
Gordon Brown has a piece in the Guardian aguing that “global problems need international responses. By working together, we can protect jobs and living standards”Trump is pushing the world towards recession.. He focuses not on exchange rates but rather on domestic demand in big surplus countries- “We…have to remind China that if it is to present itself as a champion of free trade, it is in its interests to focus more on expanding domestic consumption than flooding the world’s markets with cut-price goods it cannot now sell in the US”. “US deficit spending since 2010 has been many multiples of the euro area, leaving Germany in particular with proportionately far lower debt than the US. With the fiscal flexibility that the incoming German chancellor, Friedrich Merz, and the EU have created, new resources can be injected into the global economy.”
@ Joe
“The US wants the production of China, Japan, South Korea, Canada, Mexico and the EU but does not want to build up debt or weaken the purchasing power of its currency in exchange.”
Exactly right. This is the problem in a nutshell! It can’t have it both ways. It’s trying to square the circle.
If the US wants the production of other countries without accumulating debt it can’t just hand over $$. The $ is an IOU of the US government and IOUs are obviously debt. It has to “pay for” the production, the goods and services, of others by exchanging it for some production of its own.
In other words both the current account and capital accounts have to be separately balanced – or close to it. They will always be a balance in total if the currency is allowed to freely float. If there is a tendency for any imbalance the currency value will adjust on the forex markets to correct it – but it won’t correct the separate imbalances.
If trump wants to correct the current account imbalance he has to correct the capital account imbalance too. Tariffs won’t do any good on their own.