- 16th April 2018
- Posted by: Manolis
In some ways, the United States and the United Kingdom were both outcasts at the recent G20 meetings in Hamburg. The United States has managed to put off partners through wavering on its NATO commitments and through its withdrawal from the Paris climate agreement. The UK alienated many of its traditional allies by deciding to depart the European Union.
So what if the two find solace in each other’s company? And what better way to consummate the pairing than through a trade deal? In fact, that’s just what President Trump promised. Speaking of the UK, he said:
“We have been working on a trade deal which will be a very, very big deal, a very powerful deal, great for both countries and I think we will have that done very, very quickly.”
This is very, very unlikely. Here are four reasons why:
- The UK has not yet divorced from the EU.This may seem like a technicality, but it matters. At the moment, UK trade policy is set by Brussels. To see why this matters, just look at cars. Currently the EU charges a 10% tariff on cars imported into Europe from the United States. Imagine that the United States and the UK struck a deal right off the bat to drop auto tariffs between the countries. With this new quickie trade deal, Chevrolets could flow into UK ports without any charge. But what, then, would stop them from flowing on to France or other points on the continent? At the moment, because the UK is part of a single market, nothing would stop this. There are not customs checks when goods move from one part of the single market to another. That’s why all countries in a single market (customs union) need to have the same trade policy.
Of course, the UK is in the process of reworking its trading relations with the rest of Europe, but that will take at least a year or two and the ultimate outcome is still murky. In the meantime, it cannot strike separate deals.
- Bilateral pairings are problematic in the modern trade world. Despite the President’s obvious affection for bilateral over multilateral deals, he may not be fully aware of the extent to which modern trade deals with issues of standards and regulations. As one example, is genetically modified corn safe for human consumption? This is not an issue of tariffs; it’s about safety regulation. The United States says genetically modified food is safe. The EU says it isn’t. What would a US-UK deal say?Note that while the UK is seeking a divorce from the EU, the rest of the continent will remain an important part of its trade. In 2016, the UK sent 44% of its total goods and services exports to other EU members. Even post-divorce, the EU will not be ignored.
- Precedents matter in U.S. trade policy.When the United States began negotiating a trade deal with the EU in 2013 (the Trans-Atlantic Trade and Investment Partnership, TTIP), there was some hope that the negotiations would be relatively quick and easy. The talks, it was hoped, could easily handle the otherwise troublesome issues of labor and environmental regulation. Those issues had plagued other U.S. negotiations, but surely the United States would not complain about the quality of EU regulation in these areas!
The negotiations foundered over multiple issues, but labor and the environment were not trouble-free. The reason was that the United States does not come up with brand new outlines of trade agreements every time it sits down with a partner. Each agreement builds on its predecessors. Thus, even with an advanced partner like the EU, whatever language was adopted on labor and the environment would be a strong candidate for a new trade standard, even when applied to countries with weaker protections. Hence, there was still fodder for a fight.
- Trade deals are not real estate deals.President Trump comes from a world in which dealmakers can get together, have a weekend of tough negotiations, and settle on terms. Trade deals don’t work that way. They take a long time. We are currently in the midst of the 90-day Congressional notification period for reworking the North American Free Trade Agreement (NAFTA) and it is doubtful whether that redo can be completed during the current Congress. There has not even been such initial notification for a US-UK deal.
The United States and the United Kingdom have had a longstanding close relationship. It is laudable that President Trump is trying to honor that at a moment when the UK is in need. But he has just made a particular promise to the UK and it is not at all clear he can perform.