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The promised post-Brexit trade deal with America may never materialise

BayRadio | April 6, 2018

It is slowly dawning that signing a trade agreement will be neither quick nor easy.

WHEN pitching an idea to President Donald Trump, a fine sales technique is to tell him that Barack Obama once thought the opposite. Small wonder British Conservatives thought selling Mr Trump a swift free-trade agreement would be a doddle. This was a fantasy. With preliminary talks under way, diplomats, trade experts and business lobbyists warn that a broad British-American trade deal will not be forged any time soon, if ever.

That may startle many Brexiteers. In 2016 Mr Obama warned British voters they would be at the “back of the queue” if they left the European Union and then asked for a trade deal, because a rational America would focus on agreements with big groups of countries. In happy contrast, Mr Trump calls Brexit “so smart”. To give America more leverage, he insists that future trade deals must be one-on-one, rather than “a whole big mash pot”. Mr Trump’s treasury secretary, Steven Mnuchin, has said that his boss wants Britain at “the front of the line” for a bilateral trade deal.

In theory, a quick-and-easy agreement should delight Republican members of Congress, too. Boosters see a chance to wave their party’s free-trade battleflag, a little tattered just now, and to reward the land of Churchill and Thatcher for shedding the shackles of a bossy and socialist Europe. Representative George Holding of North Carolina, a Republican member of the Ways and Means committee which oversees trade policy, has told the president that a trade agreement with Britain should be a priority in his first term. Mr Trump nodded approvingly, says Mr Holding, whose office is a regular stop for Liam Fox, Britain’s international trade secretary.

Alas, congressional hearings on Brexit show a pattern. Supporters of Britain’s vote to leave the EU favour stirring but vague sloganeering, comparing Brexit to the Declaration of Independence and calling for the British lion to “roar again on the world stage, a formidable force for freedom alongside the American eagle.”

Sceptics talk about details. At the best of times, Congress struggles to pass trade deals. With a tariff-loving populist in the White House, these are not the best of times. Realistically, says an insider, any window for trade deals will close months before the presidential election in 2020.

Some in the British government would settle for a limited pact to liberalise economic sectors where British and American views align, such as financial and professional services, or e-commerce, leaving to one side controversial talks about food safety or American investment in the British health system. Other British sources think time has run out even for that modest step. They point to a speech on February 27th by Dr Fox, in which the usually gung-ho Brexiteer insisted that Britain could use a range of flexible, agile tools to boost global trade, from agreements to remove non-tariff barriers, to the mutual recognition of standards and qualifications. To liberalise in a fast-paced world, “a full-blown, gold-plated free-trade agreement may not be the only solution,” Dr Fox said.

Another question of timing concerns American business leaders. Though Britain and America are each other’s largest foreign investors, the US Chamber of Commerce has warned that much investment in Britain was made “so companies could seamlessly access the much larger EU single market”. Until Britain has concluded trade talks with the EU, it is “very hard to know” what future relations with America will look like, says Marjorie Chorlins, the Chamber’s head of European affairs.

American financial firms stand out for making contingency plans to move some staff and business units. Bankers now assume that British subsidiaries will lose their “passport” right to offer services to clients in EU markets. Some industries are shocked by America’s roughness in talks to replace European agreements that will expire on Brexit, notably a treaty regulating airlines. Other American businesses long for clarity on the movement of labour and the regulation of pharmaceuticals, chemicals and digital services, says the US Chamber. For now they are putting off investments or drawing up contingency plans.

From bridge to back door

In the halls of Congress, there is speculation that US negotiators will bully a “desperate” Britain into conceding things that America can then turn around and demand from the EU, citing the British precedent. No two countries are more closely aligned than Britain and America in views of capitalism and entrepreneurship, enthuses Mr Holding. That is why Brexit Britain “needs to be careful of signing up to any European regulations that would make it more difficult to do business in the US.” In November Wilbur Ross, America’s commerce secretary, said Britain’s exit deal should “[take] into account our commercial interests”. Mr Ross spelled out what he meant: breaking with Europe’s “highly protectionist” standards and regulations.

Dr Fox has accused critics of being “obsessed” with such questions as whether to import American chickens washed in chlorine, a technique banned by the EU. He has half a point. David Salmonsen of the American Farm Bureau Federation, an industry association, suggests that America has plenty of non-chlorinated chicken to sell, so may be flexible in that fight. British-American trade in agricultural goods is not vast. It totals about $4.5bn a year, with American soyabeans, apples and grapes crossing one way, and British cheese, biscuits and breakfast cereals crossing the other. But Mr Salmonsen also makes clear that American farmers, a potent lobby, will not tolerate talks with Britain that sidestep all controversial agricultural questions, such as whether to streamline permits for genetically modified crops. No trade pact stands alone, he explains; talks with Britain are a way to put pressure on Europe. “If there is going to be a future UK-US trade agreement, agriculture will definitely want to be a part of it,” he says.

Some pinstriped Tories boast that Brexit Britain will be a free-market, low-regulation Singapore of the north. Their voters, and supportive newspapers, meanwhile go berserk at news that British passports are to be printed by a French company. Mr Ross’s wish-list is full of tabloid provocations: more “science” in agricultural rules (eg, hormones in beef, ractopamine growth-promoter in pork), an end to geographic protections (eg, rules saying Stilton cheese must be made in England), or letting American carmakers self-certify the safety of exported models, with post-market verification by regulators.

Worse, the concessions Britain might give America are of a sort likely to sour trade talks with Europe—prepare for continental politicians calling Britain a Trojan horse for Trump. The moment Britain imports controversial Yankee crops, cries will go up for a hard border on the island of Ireland, or one separating Northern Ireland from the rest of the UK.

Finally Britain must navigate what one official calls Mr Trump’s idées fixes, such as his obsession with balanced trade (a problem given Britain’s sizeable current-account surplus with America) or his desire to equalise tariffs imposed on German cars entering America, and vice versa. Insiders predict that Britain will be pressed to scrap all import tariffs for American-made cars, even if Britain is still imposing them on cars from the EU. As it happens, the largest single shipper of American-made cars to Britain, accounting for 20,000 sales last year, is a BMW plant in Spartanburg, South Carolina. That would be an ironic undercutting of Brexiteer plans to use car imports for leverage: a back door for Germany, created by Mr Trump. What did Brexiteers think “America First” meant?

Written by BayRadio

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