Photo by Jonathan Ernst / POOL / AFP

Do we need a trade deal with the US?

Now is the time for the UK to reassess priorities

Artillery Row

Nancy Pelosi has warned the UK government that if it undermines peace in Northern Ireland, then the US Congress would block any free trade agreement between the two countries. Pelosi is obviously right — the UK government should honour its treaty obligations and should in no way destabilise the hard-won and often fragile peace on the island of Ireland.

However, it does raise an intriguing question. Just how likely is a free trade agreement between the UK and the US anyway? The idea of a trade deal with the United States was dangled by Brexiteers as a major benefit of Brexit, and it is currently a major goal of the Department for International Trade. In reality, a comprehensive free trade deal between the UK and the US is very unlikely in the near future.

It could be tempting to view this as either proof of the UK’s decline as a major player brought about by Brexit, or that President Biden has some deep-seated pathological dislike for the UK. Both these viewpoints are incorrect. The simple truth is that the current US administration is not that interested in negotiating trade deals with anyone. 

Biden’s focus has been on domestic issues and so he believes (incorrectly in my opinion) that international trade does not have an important role to play in the economic recovery of the US. As such, it would be wrong to view it as a slight against the UK or evidence of British decline.

The tabloid media is wrong to call these trade deals

Moreover, despite international trade being a great thing, this is not necessarily cause for despair. This is the case for five main reasons.

First, the current approach being taken by Trade Minister Penny Mordaunt is actually the right one. Mordaunt has been meeting with leaders of individual states in order to increase investment between them and the UK, and also to make it easier for British companies to operate in these states and vice versa.

The tabloid media is wrong to call these trade deals because they are not — and the government is being irresponsible debriefing them as such. However, they should still be viewed in a positive light. Far too often free trade deals focus on abolishing tariffs and agreeing on greater market access for products. There is nothing wrong with this, of course, but given that tariffs on most non-agricultural goods are already so low, FTAs often do not create a lot of value. Major benefits for an economy such as the UK would come from focussing on what it does well, such as professional services. So making it easier for professionals to operate in certain US states is a really good thing.

This brings us onto the second benefit: it gives the UK time to figure out what it actually wants from a free trade deal with the US. A fair criticism of the UK’s trade deal with Australia (and I say this as someone who worked on it) is that it wasn’t exactly clear what the UK wanted to get out of it. Whereas the Australians went in with a laser focus on exactly what they wanted, it perhaps appeared that the UK government just wanted to sign any deal in order to signal to the world (and itself) that the country was back as an independent trading nation. 

This is partly understandable given the political pressures and the fact that negotiating trade deals was a novel experience for most civil servants. But it should serve as a lesson for future negotiations. In many ways the pressure is off. The UK has some deals already done (which can and should be improved upon), but the government can take its time to ensure that the UK negotiating team focuses on elements which will bring the greatest benefits to the British economy.

The UK might appreciate its nearest trading partner, the EU

The third potential upside is that it should allow the UK to focus on trade deals which have greater value. For example, a trade deal with India has the potential to be very significant. India has a huge population and is set to become a major economic player. This, coupled with the fact that it still levies very high tariffs on goods, means that a comprehensive trade deal would potentially bring major economic and political benefits. There is also the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). It is difficult to say just exactly how significant joining would be in economic terms, but it certainly would help the government to realise its Global Britain ambitions as part of a pivot to Asia-Pacific.

The UK should also focus on using whatever influence it has to encourage the Biden administration to once again champion free trade and the international rules-based system. Bodies such as the WTO, which are so essential for the operation of this system, sadly became weak and ineffective over the past decade. Now is the UK’s chance to work with the US and other nations to reinvigorate these organisations. With Ngozi Okonjo-Iweala as the Director-General, the WTO now has an incredibly intelligent and effective leader, so this is the perfect time to reform and strengthen the international trading system.

Finally, it might help the UK to grasp that negotiating trade deals with countries thousands of miles away is not easy. Thus, it might appreciate the value of at least not antagonising its nearest trading partner the EU. Normalising relations with the continent is in no sense mutually exclusive with building on relationships with other countries.

A comprehensive trade deal with the US might be out of reach for the moment but the UK should not take this personally. Instead it should take the opportunity to reassess its priorities, reinvigorate the international rules based system and normalise its relationship with the EU.

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