With 25% tariffs being enacted on Mexico and Canada, 10% tariffs on China and warnings to the EU, how should the UK view its US trade prospects? The UK Government has been talking a good game about the prospects not only of avoiding US tariffs on our exports, but also striking a deal with Trump to improve trade relations. At the same time Keir Starmer is meeting EU leaders at an EU Council session in Brussels – the first such meeting after Brexit – to push forward a ‘reset’ with the EU. What does all this mean for US/UK trade and investment?
From discussions with UK businesses and pundits in Washington there is some optimism that the Prime Minister’s declared position that we don’t have to choose between Washington and Brussels may have some chance of success. Of course, that would be unlikely if we either got too close to the EU – for instance, by signing up to follow too many EU single market rules – or, conversely, if we changed some of our regulations in areas like food to allow US produce into the UK which is banned in the EU.
However, neither of those is necessary to improve our trading relations with both parties. There are plenty of things which can be done without prejudicing our scope to face both ways – whether that’s joining the Pan Euro-Mediterranean (PEM) agreement governing rules of origin in the wider European economy, thus allowing products from a wider group of countries to qualify as “UK” content for selling into the EU, or even a limited youth mobility scheme with the EU, similar to what we have with, for instance, Australia. Similarly, outside the EU Single Market and Customs Union, the UK is able to negotiate on tariffs and mutual recognition of standards or regulation with the US. This could mean, for instance, encouraging US and UK regulators to share best practice and look for ways jointly to reduce costs for business, building on existing arrangements which avoid costly retesting of products in the US.
An interesting model for a possible US/UK deal is the US/Japan trade agreement concluded in President Trump’s first term. That wasn’t a comprehensive trade agreement, but covered some industrial and agricultural tariffs and also a digital trade agreement, which would be an important area for the UK, and mirror agreements we’ve reached with countries like Singapore. The US and UK will want to explore the scope to free up further services trade, given that this is a core part of both countries’ economy and exports.
There are potential bear traps, though. Apart from the political noise in some quarters surrounding trade negotiations, especially with the US, there are asks from both the US and the EU which could make things complicated. On the US side, get ready for demands that the UK toughens up its trading relationship with China, which the Government is also seeking to improve. And if the EU adopts the position that the UK has to follow EU rules on food safety in their entirety (so called “dynamic alignment”) to smooth food exports into Europe, that will cause problems in negotiations with the US.
We can expect in both sets of negotiations wider security issues to play a part, which could play a positive or negative role, depending on the asks.
It’s not just the US and the EU that count, although they are our biggest markets. We need to pay attention to our trading relationships around the world; our service exports are split roughly 1/3 EU, 1/3 US and 1/3 rest of the world.
Let’s not rule too much out at this stage. Early indications suggest that the UK is, to say the least, not top of the list for US tariffs, and with some smart diplomacy and imaginative negotiating, and with Government and business working closely together, something worthwhile could be achieved. If businesses have positive ideas, or particular concerns, about a US deal, now is the time to be feeding that into the UK Government.
by John Alty