Coauthored with James Resnick, former intern in the International Institutions and Global Governance program at the Council on Foreign Relations.
There is a common—and understandable—comparison made between the results of the Brexit referendum and the presidential election victory of Donald J. Trump. Beyond anti-establishment sentiments, both surprise results were driven in part by the electorate’s perceived loss of national identity and sovereignty. The corollary is that both countries now appear globally isolated.
As one way out of this isolation, both governments have focused on a potential U.S.-UK trade deal. While such an accord is attractive for both sides, the United Kingdom has a greater priority: signing a trade deal with the European Union (EU). Neither deal will be easy to finalize, but Theresa May’s government would be better served by directing its already stretched diplomatic resources toward the EU. Hopefully this will be what May signals when she unveils further details on her Brexit negotiations plans, including a possible transitional period on EU-UK trade, in her speech in Florence this Friday.
For the United States, global isolation is a self-inflicted wound, the natural result of an “America First” policy skeptical of multilateral institutions and cooperation. President Trump withdrew the United States from the Trans-Pacific Partnership (TPP) on his first day in office, and he has consistently supported protectionism. Achieving “better” bilateral trade deals, like the one envisioned with the UK, will allow Trump to show not only that he is a superior “dealmaker” but also that “America First” does not equal America last and alone.
The UK government is divided over its future trading status, as well as political relationship, toward the European Union. Already, the recent EU-Japan trade deal suggests that the UK risks being left behind and detached from other important global players. At the same time, the May government is intent on proving that it can secure trade deals after Brexit. A renewal of the Anglo-American “special relationship” by way of a bilateral trade agreement would be ideal.
Winston Churchill first coined the term “special relationship” in 1946, and successive prime ministers and presidents have largely repeated the mantra to capture the unique Anglo-American friendship. At a practical level, however, tensions have often complicated trilateral relations between the UK, the United States, and the EU. In April 2016, President Barack Obama warned that a post-Brexit UK would find itself at the “back of the queue” in any future trade negotiations. Still, May and Trump wasted no time in reviving the relationship, with the prime minister visiting the Oval Office within a week of the new president’s inauguration.
Beyond reaffirming the special relationship, a U.S.-UK trade deal would give both countries a needed economic lift. Liam Fox, the UK Secretary of State for International Trade, estimated in July that removal of existing U.S. and UK trade barriers would increase the value of bilateral commerce by as much as $50 billion (£40 billion) by 2030. The United States is already Britain’s second largest trading partner outside of the EU with bilateral trade worth over $200 billion (£156 billion) a year. The United States is also the single biggest source of inward investment into the UK. Without a post-Brexit bilateral deal, moreover, the United Kingdom and the United States will both suffer, as they revert to the more onerous rules of the World Trade Organization (WTO), which could entail more burdensome customs checks, tariffs, and other nontariff barriers.
Any U.S.-UK trade deal, however, faces major challenges. First, the UK can only begin official trade negotiations with non-EU countries after 2019, when the UK formally leaves the EU. Even if it were allowed to do so, the UK presently lacks the expertise to negotiate both deals simultaneously, having ceded expertise in trade negotiations to the European Commission over the past several decades.
On average, it takes approximately eighteen months to negotiate a trade deal with the United States, and another three years for full implementation—meaning that any U.S.-UK trade deal wouldn’t be effective until at least 2024. Although, negotiating a deal with the entire EU can take even longer—the EU-Canada deal has taken seven years to negotiate—UK Trade Secretary Fox claims that an EU-UK trade deal should be “one of the easiest in human history,” since they both share the same tariffs and regulations.
Second, the U.S.-UK special relationship is currently strained. By strong margins, UK citizens disapprove of President Trump, which could undermine any trade negotiations with his administration. Third, some UK groups worry that any deal would lower British food standards, for instance by permitting chlorinated chicken imports into the UK—a topic which has already ruffled the feathers of many UK citizens. The UK might also need to lift restrictions on the use of genetically modified organisms (GMOs), as well as growth promoting hormones in beef fodder, to match what is currently practiced in the United States. Fourth, some worry that a future trade deal may allow U.S. corporations entry into the National Health Service (NHS) system.
Perhaps most important, Prime Minister May is in a precarious position to lead any politically contentious negotiations with the United States. Having weakened her hand in June’s snap election, she presides over a fragile governing coalition.
While a deal with the United States would be attractive, it would not begin to compensate for the overwhelming void that would be created if the UK fails to reach a deal with the EU. In 2016, 48 percent of UK goods exports went to the EU, and 53 percent of UK imports came from the EU. The corresponding figures for UK trade with the United States were 16 percent and 8 percent. If no trade deal is reached between the EU and the UK, and the two sides revert to WTO rules, the damage to the UK economy would be catastrophic. The WTO outcome (which is not even guaranteed) would impose tight quotas on UK agricultural exports and a 10 percent tariff on UK car exports to the EU. Changes in tariffs and regulations would also impact automotive supply chains, which could increase the cost of assembling a car in Britain by £2,370.
The latest EU-UK negotiations in July and August focused relatively little on trade relations, but the urgency of achieving an EU-UK trade deal will surely grow. Philip Hammond, Chancellor of the Exchequer, rightly argues that the UK should prioritize EU trade during the transitional period until 2019. The UK government’s recent proposal that it will seek to negotiate an interim “close association” with the customs union for up to two years after Brexit should help ease some of the trade adjustments to Brexit. Although, any transition policy will likely run into some opposition from the EU.
A bilateral UK-U.S. trade agreement sounds attractive since it would signal that neither country is alone in the world. But bolstering the special relationship should take a backseat to UK efforts to finalize a critical trade deal, or even a transition agreement, with the EU by 2019.