Land of the Free (Trade Agreement)

As the third round of the UK-US trade negotiations take place, Tiffany Burrows takes a look at what pressures are being factored into the approach to the discussions

A lot has happened since President Obama made headlines during the 2016 EU referendum by saying if the UK voted to leave the EU, they would be at the “back of the queue” for a trade deal with the United States. Historically, the UK has been seen by the US – and itself – as America’s bridge with Europe (read the EU, once it came into being). This role has arguably been weakened over recent years, particularly noticeable during the Obama presidency and his closeness to German Chancellor Angela Merkel, and the UK’s relationship with the US has had to adapt. It is therefore no coincidence that the UK Government looked across the Atlantic as the first post-Brexit opportunity to pursue its free trade ambitions.

Four years, two Prime Ministers, and a President (maybe two) later, the UK is hoping to capitalise on its newfound trading ‘independence’ but will President Donald Trump’s reassurances of a trade deal be enough to cement a new trading relationship with its friends across the pond?

As negotiations continue, there are clear pressures which will impact completion of a successful FTA, including: the UK’s geopolitical position, economic arguments, time, the upcoming Presidential Election, and coronavirus.

UK’s geopolitical position

As the UK looks to recalibrate its position in the world, a stronger relationship with its closest ally will serve it well, and help navigate this new position. Negotiating with the US in parallel to the other negotiations (the EU, Australia, New Zealand, and Japan) will certainly give negotiators some leverage and flexibility to make concessions based on knowledge incurred from the negotiations taking place elsewhere. It also adds another string to the UK’s bow in asserting its strategic significance  to the US in its global endeavours, particularly when it comes to China. For example, negotiations with the US could certainly be mutually beneficial in helping the UK’s bid to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) – a partnership President Trump withdrew support for – with the UK once again playing the role of ‘bridge’ between the US and another commercially and geopolitically important framework.

Economic arguments

In addition, the US remains the world’s largest economy and removing barriers for UK exports can only be beneficial for UK business. Policy Exchange recently pointed out that given EU-US trade negotiations have been delayed “there is a political advantage in being seen to succeed where the EU failed – and an economic benefit in first-mover advantage”.

UK-US trade was valued at £220.9 billion in 2019, making up nearly a fifth of all UK exports and Government analysis shows “a UK-US FTA could increase trade between both countries by £15.3 billion in the long run, in comparison to 2018, and increase UK workers’ wages by £1.8 billion.” This may seem significant, but earlier this year, the Financial Times reported that the Government’s own (leaked) forecasts suggest that economically, a UK-US FTA would increase the UK’s economic output by around 0.2 percent. Critics have rightly pointed out that does not come close to making up the shortfall lost from an FTA with the UK’s closest neighbour, the EU. Striking a free trade agreement with its closest ally is high on the UK’s list of geopolitical strategic priorities, rather than purely economic.

Timelines

Given the historic ties and shared liberal values between the two countries, you’d be well within your rights to assume that the FTA ambition should be reached easily and quickly…but nothing is ever that simple. US Trade Representative Robert Lighthizer asserted: “I don't want anyone to think this is going to be a rollover.” There are several expected factors at play, such as racing against the electoral clock, with the US Presidential Election taking place in November this year, political optics, and legitimate disagreements on topics including drug pricing, food standards and US tariffs to name just a few.

In May, Lighthizer and International Trade Secretary Liz Truss issued a joint statement saying: “we will undertake negotiations at an accelerated pace and have committed the resources necessary to progress at a fast pace.” However, both sides have now abandoned the ambitious aim of securing a trade deal between the two countries before the November Presidential Election.

This acceptance is not indicative of defeat, but rather a recognition that the deal that they are pursuing will be more comprehensive rather than a speedy, potentially incomplete, process. Politico reported that this has been welcome news to the business community, with one business representative saying that the commitment to not rush a trade deal “makes us excited… because we want the right deal at the right time and we don’t want a quick political deal”. 

Presidential Election

You may be thinking that this commitment is all very well and good but that it could all change if incumbent Donald Trump loses the election and Lighthizer follows his boss out of the door. Against the backdrop of the increasing likelihood of a change of administration stateside and the potential disruption this could cause, trying to dot the is and cross the ts before November seemed sensible. In reality, the scale and logistics of the negotiations have proved this impossible, and actually, undesirable.

Whilst a change in administration typically denotes a change in policy direction, a Biden administration is not expected to drastically change the path of American trade policy in the immediate term. However, the change of White House occupant could see a UK-US FTA become less of a priority, and this is something the UK government must be prepared for. This is once again where the UK’s accession to the CPTPP becomes more relevant. The Sunday Times reported a Conservative adviser saying that “the assumption in Whitehall is that if Biden wins, we won’t need to do a bilateral trade deal because we might both end up in CPTPP”.

Coronavirus

It will come as no surprise that the COVID-19 crisis has impacted negotiations of all kinds and the UK-US negotiations have been no different. Negotiations of this nature take place on two levels; the political and the technical, with the former being heavily reliant on the political momentum domestically but also crucially, the individual personalities and relationship between the leading political negotiating figures. In the case of the UK and the US, trade officials describe Truss and Lighthizer as having “good personal chemistry”. With a face to face meeting taking place for the first time this week, we can therefore expect some progress, albeit very little as Lighthizer admitted that “there are very, very fundamental issues that we have to come to grips with”.

So what have the two been discussing? Check back on our page in the coming days to read a rundown of the issues on the table in a follow-up blog and follow #TradeTuesday for future updates.

Photo by Lucas Sankey on Unsplash