Monday 16 January 2017

Prospects for a UK-US trade deal

Interviewed by leading Brexiter Michael Gove for The Times, Donald Trump has spoken of doing a quick trade deal between the US and the UK which could be ‘signature-ready’ in 2019 when Britain is expected to leave the EU.

This has been greeted with much joy by Brexiters, but considerable caution if not downright scepticism is called for. First, there could only be trade deal if the UK leaves the EU customs union. That has been strongly hinted at by the government, but not definitively stated and at other times the opposite has been said, including by Liam Fox as recently as last month. Tomorrow the Prime Minister is due to give more detail on her plans, but if the speech is as trailed it will only go so far as saying that the UK would be prepared in certain circumstances to leave the customs union.

Second, even if it is known that the UK plans to leave the customs union, it cannot formally undertake negotiations until it has done so. If that is not to be until 2019 then a deal with the US could not be ready to sign by then. Of course the prohibition on negotiation might be flouted, and would be hard to enforce, but even then two years would be too short to complete a free trade deal of any great scope (deals come in many shapes and sizes). And, in any case, it is hard to see how the US or anyone else could sensibly negotiate terms with the UK without knowing what shape future UK-EU trade relations will take. Trump may well be long gone before any deal is ready for signature.

Third, if and when it happens, a deal is one thing; a good deal (for the UK) something entirely different. Given that Trump’s core economic policy is to put America first in trade deals, and a hostility to the kind of deals the US has done in the past, it seems unlikely that he would agree good terms for the UK. On the other hand, a Brexit government determined to show that leaving the EU can work is likely to accede to almost any terms simply to get a deal at all. That might have severe consequences not just economically but in terms of farming, environmental regulation, labour standards and public service provision. It is ironic that during the campaign Brexiters used the prospect of TTIP as an argument for leaving the EU, yet regard a bi-lateral with the US as highly desirable.

With all that said, Trump’s election does have a significance for Brexit. Just by saying what he has said he has boosted the confidence of Brexiters. There is also no doubt that (like most commentators) he sees the Brexit vote and his own election as in some ways linked and perhaps feels some desire to support it. Equally, his hostility to the EU creates the possibility he would want to do so in pursuit of his wider foreign policy strategy. What that adds up to in concrete terms and priorities is difficult to gauge, however (notably, when Gove asked him if the UK was now ‘front of the queue’ for a trade deal Trump dodged the question). It’s difficult to imagine it is going to be his top priority.

Meanwhile what is beyond speculation is that the pound has fallen again in anticipation that Theresa May is going to be clear tomorrow that she plans a hard Brexit (personally, I suspect that she will continue to leave some ambiguity on that but I will post about that once the speech is made). Yet currency traders do not appear to regard Trump’s comments as heralding good future news for the British economy.

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