US-UK Free Trade Deal: the Beginning of Something New?

1 august 2017

Clifford Kupchan - Chairman and Practice Head, Eurasia Group

Resume: Any free trade deal between the United Kingdom and the United States, if it ever were to happen, is still many years off.

Any free trade deal between the United Kingdom and the United States, if it ever were to happen, is still many years off, writes Valdai Club expert Clifford Kupchan. The European Union’s rules strictly forbid London from striking any bilateral trade agreement. Moreover, it is uncertain whether an agreement between Washington and London would make sense from an economic standpoint. What this debate illustrates, however, is the growing politicization of international economic relations.

On Monday July 24, British negotiators visited Washington, D.C. with the intent of initiating discussions on a future UK-US free trade agreement, which has been heralded as a goal by both President Donald Trump and Prime Minister Theresa May. Is this the beginning of a new dynamic that could lead to a break-up of the EU’s fabric as a coherent trading power?

There are many reasons for Trump and May to favor such a new deal. For the British prime minister, the upside is obvious: an FTA with the world’s largest economy would be a great way to mitigate and rhetorically downplay the otherwise-destructive consequences of her country’s exit from the EU. From the US president’s perspective, support for a bilateral agreement with a post-Brexit UK is an opportunity to show support for one of the few allies who hasn’t criticized this White House, speaks a common tongue, and shares his distaste for the prospect of a cohesive and influential European Union.

And yet, I wouldn’t bet on a US-UK FTA coming about any time soon. First, the European Union’s rules strictly forbid London from striking any bilateral trade agreement – be it with the US, India, or any other country – until after the Brexit negotiations have been completed. This means any deal, if it ever were to happen, is still many years off. Second, even if this were not a concern, the UK simply doesn’t at the moment have the administrative bandwidth to engage in what would necessarily be an intensive negotiation process. Trade deals are not negotiated by fiat; they are the result of minute attention to every comma by skilled negotiators. And the UK’s negotiators are too busy dealing with Brexit. Finally, it is uncertain whether an agreement between Washington and London would even make sense from an economic standpoint. Historically, the UK has run a trade surplus towards the US, and that is not something the US president likes to encourage. Further, May knows she cannot afford to antagonize British producers who would be asked to face new competition from their American rivals.

Even if such a deal were to come about, it is highly unlikely it would lead to a breakdown of the EU’s cohesion as a trading bloc. Every member of the Union knows that trade negotiations are all about leverage, and that their leverage will always be greater collectively than individually. Further, there simply isn’t a great appetite for engaging in new trade agreements among European populations at the moment. Most Europeans currently feel skepticism not only about the concept of free trade but also and perhaps more importantly about the way in which recent trade deals have been negotiated. Brave would be the leader who tried to go against that Zeitgeist in the coming couple of years. Finally, to the extent that there remains some desire among Europeans to advance their trade agenda, that aspiration has already found an outlet in the form of trade negotiations led by Brussels, most recently with Canada and Japan.

One new trend the prospect of a US-UK FTA does illustrate, however, is the growing politicization of international economic relations. Precisely because an agreement between the two might not make much sense from an economic standpoint, its completion would signal that both parties were driven primarily by political motives, as described above. This isn’t the first time a trade deal has been hijacked by geopoliticking: under the Obama administration, cabinet officials made little secret that the Trans-Pacific Partnership was only partly driven by trade gains and was also aimed at containing China’s rise. Nor is this pattern only a Western or American creation: Russia, for one, has often faced similar criticism that its plans for the Eurasian Economic Union – and striking deals with some third parties such as Egypt or Vietnam – may be driven more by the pursuit of political influence than economic profit. The politicization of trade is a global phenomenon.

The Valdai Discussion Club

} Page 1 of 5