Thought Babble

The UK-US special relationship: not so special after Brexit

“The UK is going to be at the back of the queue” noted then President Obama in 2016, just before the fateful vote on Brexit. He was referring to the likelihood of a UK-US trade deal. Meanwhile, during his recent trip to the UK following the NATO summit, President Trump claimed that such a “great” deal between the UK and US could definitely be secured. Who, then, has the right of it? Leaving aside the criticisms about whether US Presidents should meddle in UK ‘domestic’ politics, the narrative so far suggests the special relationship may sour after Brexit, no matter what the outcome.

The UK’s total trade in goods and services with the USA is much lower than that of trade with the EU. The USA is indeed the UK’s biggest single trading partner as a country; but as the closest geographical neighbour and with a consumer population of over 500 million, the EU’s single market accounts for around 45% of UK exports. In 2017, this amounted to £274bn. Meanwhile, the USA only accounts for around 19% of UK exports and, according to UK figures, around 11% of imports. It takes no great percentage of intellect to realise that the EU is, on the whole, worth more economically to the UK than is the USA.

Figures on the precise value of the surplus or deficit the UK runs with the US for trade in services and goods are hard to come by (ranging from a £31bn surplus by UK estimates in 2015 or a £13bn deficit by US figures). However, for the EU there is a clear deficit of around £60bn. This is the result when there is complete free trade with the EU. Two things are striking from the simple overview of these figures. First, trade is politicised with the USA. Both parties claim a surplus and following the recent trade war on China triggered by President Trump, we might observe that similar wrangling can be expected should the UK turn towards a more liberalised trade with the USA. Second, the UK clearly needs the EU for many products. Outside of it, although some products could be sourced elsewhere, the cost of transporting them and the need to negotiate new deals for every sector and with every partner will likely mean UK consumers would simply need to pay more for their goods without an EU-UK free trade deal.

Disregarding the above analysis, a favourable deal with both the US and the EU would be the best outcome for the UK. Not only would these visionary deals preserve existing trade, they would build upon it, cementing the UK as a key global trading partner for both sides of the Atlantic. Unfortunately, the hope of attaining such as deal is tantamount to hoping for a pie (or cake?) in the sky and eating it.

The reason no truly meaningful and profound trade deal is feasible with both the EU and the US is simple: standards. The EU and the UK have different standards (often deemed higher standards) to those of the US. President Trump underlined this during his recent visit to the UK, noting that a deal with the EU based on the recently proposed UK White Paper would ‘kill’ any deal with the USA. Rolling back from his comments in 2017, in which he claimed the UK would be at the front of the queue for a trade deal following Brexit, he now only suggests that a deal is possible.  The reason for this is that trading partners in a free trade deal must be sure that such a deal is fair and that both sides play by the same rules. The infamous TTIP, a free trade deal between the US and EU, is not only yet to fly, but has all but had its last feathers plucked out following the realisation that the US and EU, would not bend to each other’s demands on standards.

Outside of the EU, the UK would be a much weaker power compared to the US. Its leverage to encourage the US to adopt higher standards would be non-existent in most sectors, especially given that the US believes it has a trade surplus with the UK. Consequently, in order to reach a trade deal with the US, the UK would have to accept lower standards than it has at present for goods and services. If it didn’t embrace such lower standards, the US could undermine the UK by selling goods produced under poorer working conditions, or of lower quality for lower prices.

Non-regression clauses in the White Paper and commitments to maintaining environmental standards post-exit suggest there is little risk the UK will diverge from high EU standards after exit.  The UK’s aspiration to achieve a free trade deal worthy of the special relationship stands in stark contrast, however, to its grandstanding on standards. With little leverage over the US, it is inevitable that the UK would need to make a choice between being a rule-taker from the EU, where before it had influence over those rules, or being a rule-taker from the US.

Moreover, the move to accepting lower standards might not be as strongly resisted as may be hoped: indeed, voices in the UK Government have already spent years calling for the UK to pull out of the European Convention on Human Rights. These voices include both the current Prime Minister and the Secretary of State for Exiting the EU, Dominic Raab.

On the assumption that the UK will indeed Brexit, which route should it therefore choose? The lack of accurate figures, uncertainty over whether the EU will breakdown its last protectionist frontier in agricultural goods and indeed, whether the UK will actually make efficient use of the extra £358m a week it will receive once it leaves the EU mean no clear answer can be given. However, certain observations can be made.

The US and the EU are balanced powers. The US-EU agreement has taken years and is looking even less airworthy than it did. However, outside the EU, the UK is an important, but minor trading partner. It will have no choice but to accept US-imposed rules, or face a closed door on the most ‘lucrative’ trade deals. With voices in the UK Government not all united to the cause of maintaining standards, it seems ever more likely the UK would be willing to bend around the will of Trump Tower to patch up the gap in trade after Brexit.

When the UK leaves, it will not be taking back control to choose to go hand in hand with its cousin across the water. Instead it seems much more likely it will lose the control it currently has, manoeuvring a 28 Member State bloc to negotiate trade deals on an equal footing with the biggest players in the world, and instead adopt a position as a true rule taker to the US.

Far from an apparent beacon of the free world, the US has adopted an increasingly protectionist stance under the current administration, and as economies turn down as a result, it’s only likely to worsen. However, China’s continued economic success suggests that turning back on the US as a trading partner following the tariff war imposed by the American President, can be a wise decision. The UK might do well to tread a similar path.

In the end, both Presidents were right. If the UK does decide to abandon its commitments to a common rule book, casting down its bold non-regression clauses on social and environmental standards, it can graciously and swiftly lock down a trade deal with the US. But this will cost its people and their true sovereignty dearly. Meanwhile, should the UK leave the EU, and seek a deal on its own whilst maintaining such a common rule book, it will forever stand one step behind.

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