Symbolism drives UK-US trade hopes, but objectives unclear

By Matthew Holehouse and Simon Taylor. Published on the MLex Brexit Service November 10 2016.

The election of Donald Trump as the next US president has raised hopes among politicians in the UK that a bilateral trade agreement is in sight.

The United Kingdom has a political imperative in striking symbolic trade agreements after it leaves the European Union, having identified such deals as a benchmark for success.

Trump, meanwhile, was a vocal supporter of the Brexit vote. During his campaign, he said his administration would seek "individual deals with individual countries" rather than the regional pacts, such as the North American Free Trade Agreement, that he blames for closing US factories.

It is not yet clear, however, where the UK's economic interests in such an agreement might lie. The precedents for US trade agreements struck at speed for political expediency are not always good.

Courtship

UK Prime Minister Theresa May's response to Trump's election has carried none of the qualifications uttered by her European counterparts.

In a telephone call on Thursday lunchtime, the pair affirmed that the US-UK bilateral relationship "is very important and very special, and that building on this would be a priority for them both," Downing Street said in a statement.

May will visit Washington "as soon as possible".

US President Barack Obama warned that the UK would be at the "back of the queue" for a bilateral agreement post-Brexit, a stance Trump repudiated during his campaign. Senior Republican lawmakers have also spoken warmly of the potential prospects for a pact.

That has fueled hopes among UK Conservative lawmakers that the US would be amenable to a fast bilateral agreement.

May appears not to want such a deal to become a benchmark for the success of her administration, however, and UK sources said talk of an agreement is a long way off.

During the call with the US preseident-elect, May "highlighted her wish to strengthen bilateral trade and investment with the US as we leave the EU," Downing Street said. "But she said that our relationship is so much more than that, and our two countries have always stood together as close allies when it counts the most."

Meanwhile, Jean-Claude Juncker, the European Commission president, conceded that Trump's election had dealt a blow to the troubled Transatlantic Trade and Investment Partnership. The trade deal already faced stiff opposition in a number of EU states. "I do not view that as something that would happen in the next two years," Juncker said.

Unclear rationale

The UK cannot begin trade negotiations in earnest until it has left the bloc in March 2019, more than half-way through Trump's four-year term in office. By then, his administration may be unable to sacrifice the attention and political capital to strike an agreement.

It is unclear what goals the UK would wish to pursue. Such an agreement ought not necessarily be an economic priority for the UK, given it has in recent years run large export surpluses with the US.

"It's not a relationship that needs a free-trade agreement," said Hosuk Lee-Makiyama, director at the European Centre for International Political Economy in Brussels. "I don't think it will materialize."

A further complicating factor is that some services markets that the UK might seek to enter, such as insurance, are regulated at a state level. "Whatever the UK wants is not in Trump's power," said Lee-Makiyama.

Financial services, the UK's strong suit, were a sticking-point in TTIP talks with the EU, as US negotiators argued that existing trans-Atlantic forums were adequate for settling regulatory issues.

The UK's haste to strike a trade deal and lack of negotiating clout could see it under pressure to meet terms sought by US interests. These would likely include relaxing the drug pricing set by the UK National Health Service, which forces down the price of pharmaceuticals; and reducing agricultural tariffs to the benefit of the efficient and subsidized US farming industry. Neither of these may be popular with British voters.

"They can pull a fast one, there is a huge risk of that," said Liam Byrne, a former UK Treasury minister who sits on Parliament's International Trade Committee. "The government's priority will be negotiating the right divorce deal with Europe, so the idea we have a surplus of negotiators to send to Washington is fanciful."

Such circumstances could see a bilateral agreement resembling that between the US and Australia, which was driven by a political will to cement the security relationship between the administrations of Prime Minister John Howard and President George W. Bush.

The speed with which it was negotiated, in less than two years, has been held up as a model by pro-Brexit campaigners. It eliminated most tariffs on agriculture and manufactured goods, and created more stringent protections for intellectual property. However, studies suggest it had little impact on Australia-US trade and may have contributed to reducing trade from the rest of the world.

	Eliot Gao