HAMISH MCRAE: Rules are rules when it comes to trade... until all the major players ignore them

You cannot, Mr Bailey, get the toothpaste back into the tube. Last week the Governor of the Bank of England, Andrew Bailey, gave a speech to investment managers in Dublin on how important world trade was to global growth and how the system had to be reformed.

So far, so good. But when you go through the detail it was all about trying to rebuild trading relations with Europe and how to make the so-called 'rules based' world trade system work better.

And the problem there is that the world has changed. The UK will not go back to anything like a pre-Brexit relationship with Europe, and the US will not go back to a pre-Trump approach to global trade. The task for British political and financial leaders is to exploit the opportunities that have arisen, rather than hark back to a none-too-brilliant past.

On Brexit, the Governor was careful to make the disclaimer that as a public servant he didn't take a position on it, but what he said had a clear spin. We had to 'minimise negative effects on trade' and that the changing relationship with Europe has 'weighed on the level of potential supply'. At least he didn't cite the Office for National Statistics' calculation that in the long run Brexit would cost 4 per cent of national output.

On that figure I prefer the comment of one of his predecessors, Mervyn King, arguably the most notable UK economist of his generation: 'They can't possibly know that. They just make it up.'

Nor did Bailey refer to the determined drive by Europe to make banks shift their business and people to EU centres, including Dublin. Instead it was all about trade in finance being 'a two-way street', failing to mention that the UK has a huge surplus on exports of financial services, or indeed that there were 678,000 jobs in the City of London at the end of 2023, some 30 per cent more than in 2016.

Making a good start: The UK has to negotiate its way through a bilateral trading world

Of course we need as good a relationship as possible with all trading partners, but we need to acknowledge that, insofar as the City has been successful post-Brexit, it is despite hostility from Europe. As the still bubbling row about transferring euro-derivatives clearing from London to the EU shows, realistically that hostility will continue.

On world trade the Governor acknowledged that the system has come under too much strain 'and it is incorrect to dismiss those who argue for restrictions on trade as just wrong-headed'. And the blame for imposing that strain goes mainly to China, which as he noted, heavily subsidised key industries to help them dominate world markets.

China imposed 5,400 'subsidy policies' between 2009 and 2022, two-thirds of the global total. He made the point, too, that it was reasonable for countries to seek security of supply, but suggested they do so by dealing with reliable partners rather than trying to bring production back home.

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These are sensible comments, in particular acknowledging that Donald Trump has a point and China has abused global trading rules. He notes the damage done to trade by Covid and Russia's invasion of Ukraine. He points out how important trade in services is, particularly for the UK. It's an interesting, thoughtful and conventional analysis, and maybe that is what we should expect from a central banker – but I fear it is a naive one.

Why? Take Europe. There is a huge trading imbalance between the UK and EU. They sell far more goods to us than they buy, and we export more services to them. But they are not going to change their rules to increase their imports of services.

Take China. It's not going to stop subsidising its industries for fear of getting ticked off by the World Trade Organization. As for the US, it has given up on the whole International Monetary Fund-WTO system, that's that.

So instead we have to negotiate our way through a bilateral trading world. The UK has made a good start. There are lots of reasons to attack our Government's financial policies, but doing deals with the US, the world's largest economy, and India, soon to be the third largest, deserves to be welcomed. We seem to have a slightly better relationship with Europe, and I don't see why we shouldn't get on with China.

Let's try to be nice, as Andrew Bailey was in Dublin, but let's be aware that the rules-based order is dead.