What are the chances of a US-UK trade deal?

This article is taken from the latest issue of Relocate magazine – the must read for HR, global managers and relocation professionals.In answer to the question, "what are the chances of a US-UK trade deal?" President Donald Trump reckons “very substantial” talks are already underway and enthuses about the possibility of a post-Brexit deal leading to a "three to four, five times" increase in transatlantic trade.The UK’s International Trade Secretary Liz Truss sounds quietly confident, too. "Negotiating and signing exciting new free trade agreements is my top priority – and none more important than with the United States. We are fast-tracking these deals and making sure British businesses are ready to trade so they can take advantage of the golden opportunities ahead," she says.Others, though, have sounded a more cautious note. "A deal with the US is not going to be done in a trice. The US are very tough negotiators and we will also have to be very tough." Who said so? None other than Boris Johnson, a few days before he became Prime Minister in late July.

Pre-Brexit trade preparations

Of course, no deal can be done until the UK leaves the European Union (EU) at the end of October, but some low-key steps have already been taken to strengthen the Anglo-American trading relationship. In February, a mutual recognition agreement (MRA) was sealed between the US and UK, This rolls over aspects of a US-EU MRA, covering areas such as telecommunications equipment and pharmaceutical manufacturing practice. Additionally, there has been an agreement on derivatives and insurance trading, which would take effect in the event of a no-deal Brexit or at the end of any transition period agreed between the UK and EU.On a wider free trade agreement (FTA) between the two nations, negotiations have been going on at a fairly subdued level for the past two years, but "have failed to show any meaningful progress and are considered to be deadlocked," says Sophie Berner-Eyde, a Brussels-based associate of US law firm Kelley Drye and Warren. "Should the UK leave the EU without a deal at the end of October, World Trade Organisation terms would govern US-UK trade until such time as a trade deal is agreed," she adds.

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"Much hinges on the UK’s post-Brexit trading relationship with the EU, which still remains a priority for the UK. As Boris Johnson pursues hard-line rhetoric on Brexit, insisting both that the current EU-UK deal needs to be renegotiated – which EU leaders reject – and that the UK will leave the EU on the scheduled date of October 31, with or without a deal, it is difficult to predict how the UK-EU trading relationship will unfold in the coming months. As of now, however, the EU is the UK’s largest trading partner: total UK trade in goods and services with EU countries in 2017 was $788 billion, whereas two-way trade between the UK and the US in the same year totalled about one third this amount, at $236 billion," says Berner-Eyde.

Positive signs for a UK-US deal

45 Republican senators write espressing support for the deal

There is, however, some real enthusiasm in Washington for a deal – and not just from Mr Trump. In August, 45 Republican senators signed a letter delivered to the British embassy, expressing their whole hearted support or a trade deal regardless of whether or not the UK seals a new trade pact with Brussels.The signatories, including James Risch, chairman of the Senate foreign relations committee, said they would "support whatever course Britain takes", adding, "If Britain leaves the EU with no deal, we will work with our administration, your government and our friends in the EU to minimise disruptions in critical matters such as international air travel, financial transactions and the shipment of medicine, food and other vital supplies. We will also advocate for a new bilateral trade agreement, as early as your Brexit terms would allow, that reflects the centuries of open commerce between our nations."

Any US-UK deal would be vetoed with the re-emergence of a hard border between Northern Ireland and the Republic of Ireland

Yet any US-UK deal would have to be approved by not just by the White House and the Senate, but by the House of Representatives, too. Here, both the Democrat majority and Republican members – from Speaker Nancy Pelosi on down – have made it clear they will not approve any treaty if a UK-EU impasse results in the re-emergence of a hard border between Northern Ireland and the Republic of Ireland.Robert Bosch, senior fellow at the Center on the United States and Europe at the Brookings Institution, says, "Although Trump has championed a free trade agreement, Johnson will confront an uncomfortable reality: if the UK deviates from EU economic rules, there will be more freedom to negotiate trade deals, yet greater need for intrusive customs checks on the Irish border. Congressional leaders have warned that a no-deal Brexit resulting in a hard border and destabilising the Northern Ireland peace process would jeopardise their support for a trade deal."And the White House appears to have its own 'red lines' over a deal. According to a report in the Daily Telegraph, the administration has informed Downing Street that no agreement will be possible if the UK presses ahead with its proposed Digital Services Tax: a 2% levy on large multinational – and overwhelmingly American – companies that avoid tax in Britain by funnelling revenues through more favourable tax regimes overseas.

Concerns raised over US trade objectives

Meanwhile, US trade representatives have set out ambitious objectives for any agreement, including slashing tariff and non-tariff barriers on food and decreasing regulatory divergence, prompting concerns in the UK that these could allow chlorinated chicken, genetically-modified crops and hormone-treated beef into the UK – something currently outlawed in Europe, although there is a body of scientific opinion that says health fears over US agriculture products are overstated.

NHS would be "on the table" in any US-UK trade negotiations

Additionally, Woody Johnson, the American ambassador in London, threw his spanner in the works recently when he said the National Health Service (NHS) would be "on the table" in any trade negotiations, by allowing American companies to bid for contracts in the UK public sector.Much, of course, could depend on the knock-on effects of any deal the UK manages to reach with the EU after Brexit. Were London and Brussels able to overcome their differences on issues on such as the Irish border and enter into a loose form of customs union, "US-UK negotiating flexibility would be restricted and trade talks limited to areas outside of the scope of the customs union, for instance, regulatory cooperation, services, public procurement, intellectual property and digital trade," says Berner-Eyde.As it stands, Mr Johnson’s government is thought most likely to try to get a deal with the Americans that replicates the sort of pact that the EU finally struck with Canada last year. Even using this framework, however, poses its own problems.

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A fair trade: what would a 'Canada-style agreement' with the EU, US and other countries mean for UK trade, labour market and service industries?

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And then, of course, there are political hurdles to overcome on both sides of the Atlantic. The Conservatives’ majority in the House of Commons has gone, even with the backing of Northern Ireland’s Democratic Unionists. And next year’s presidential election in the US could make any agreement between warring Democrats and Republicans hard to achieve when their eyes will be so firmly focused on the upcoming polls.

Time is not on the UK's side

But perhaps the greatest challenge facing Britain’s ambitions of achieving a trade deal with the US is that old enemy: time. Yasmeen Serhan, a London-based correspondent of The Atlantic, commented recently that, with the next Brexit deadline looming and with no withdrawal agreement currently in sight, "It’s likely that Britain will leave the EU at the end of October without a deal. Most of the trading relationships it had as a member of the bloc will end."She adds, "It will need trading partners – and quickly. But time is precisely what it doesn’t have. While some trade negotiations can take as little as one-and-a-half to three years to complete, others span decades. A potential trading partner will almost certainly use this weakness to reap concessions."As Sam Lowe, senior research fellow at the Centre for European Reform says, "This always gets portrayed as a sort of pejorative thing about talking down Britain, and it’s really not. It’s just being realistic about power dynamics in these negotiations. Who needs a deal more?"After Foreign Secretary Dominic Raab met President Trump and other senior, administration figures in Washington over the summer, he was adamant that there was a "huge appetite" in America, as well as Britain, for a US-UK trade deal. The snag is that, while this appetite might exist, nobody is quite sure yet what’s on the menu, still less what each dish might cost.

For more news and views on the issues surrounding the UK and Brexit, visit our dedicated UK and Brexit sections. 

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