Would a trade deal with Trump boost Brexit Britain?

Would a trade deal with Trump boost Brexit Britain?

Even before Donald Trump arrived in Britain on Monday, he was singing the praises of a possible US-UK trade deal. The benefits of such an accord, the US president contended, would far outweigh any losses caused by Britain’s exit from the EU.

“We have tremendous potential to make up more than the difference,” he told The Sunday Times. “One of the advantages of Brexit is the fact that now you can deal with the number one country by far.”

At the end of his first day in London, Mr Trump followed up with a tweet. “Big Trade Deal is possible once U.K. gets rid of the shackles [of the EU],” he said. “Already starting to talk!”

The promise of a quick post-Brexit trade deal with the UK is music to the ears of some of the more Eurosceptic candidates in the race to become the next Conservative party leader. But trade experts have been nonplussed by the president’s arguments.

Could a US trade deal more than offset losses from a hard Brexit?

No. The US already trades extensively with the UK, but is much less important to the British economy than is the EU. In 2017, the US accounted for 18 per cent of UK exports, and 11 per cent of its imports, while the EU accounted for 45 per cent and 53 per cent, respectively.

Trade experts link the extent of trade to three big forces: the size of the trading partner, distance and the depth of trade arrangements.

On size, the EU and US are similar. The US economy produced goods and services worth $20.5tn in 2018. Once the UK is excluded, EU GDP was a broadly comparable $16tn at current exchange rates.

The reason why Britain’s ties with the EU are so much more extensive than those with the US comes down to distance and the depth of the relationship.

“We do three times as much trade with the EU than the US because it is closer and there is regulatory alignment,” said Alan Winters, director of the UK Trade Policy Observatory at Sussex University. “Even if we had regulatory alignment with the US, the distance factor would still mean we would do less trade.”

So to compensate for any fall in UK-EU trade, UK-US trade would have to grow by a much bigger proportion. If Britain’s imports and exports to the bloc dropped 10 per cent, it would require a 37 per cent increase in trade with the US.

Sam Lowe, senior research fellow at the Centre for European Reform, said it was “nonsensical” to argue there could be a big enough surge in US-UK trade to make up such a gap because London and Washington do not envisage a free trade agreement remotely as deep as the EU single market.

“We are hugely integrated in the EU economy and for any US deal, the most we are looking at is tariff reduction,” he said. Other motors of trade such as common standards and regulatory alignment would be much less touched by any US-UK agreement.

What do official UK predictions say about a US trade deal?

A 2018 cross-Whitehall study of the costs and benefits of Brexit estimated that a US free trade agreement would increase UK GDP by only 0.2 per cent after 15 years, a tiny fraction of the 2 to 8 per cent costs of Brexit during that time.

Officials arrived at this conclusion because, like other experts, they saw the gains from a US trade deal to be small in comparison to losses from the EU.

Since greater trade can boost the economy through cheaper imports and more efficient supply chains, the net effect would be to hurt UK growth in the long run.

Would a UK-US trade deal be easy to agree?

Almost certainly not.

For any significant UK-US trade deal to be possible, a hard Brexit must take place in which Britain leaves the EU customs union and diverges from the regulatory alignment of the bloc’s single market.

Unless the UK takes such steps, there would be little of substance to discuss other than relatively minor trade facilitations, especially in the service sector.

Even if a hard Brexit freed up Britain’s options, the country appears likely to balk at the price of any US trade deal. Public opinion is highly resistant to signing up to US food and animal welfare standards and to calls for the NHS to drop controls on the cost of medicines. But the US has made clear it wants both.

Washington’s negotiating objectives for an agreement insist that British bans on chlorine-washed chicken and hormone-injected beef must disappear as part of “eliminat[ing] practices that unfairly decrease US market access opportunities or distort agricultural markets to the detriment of the US”.

Pressed on the BBC at the weekend whether healthcare would need to be part of a trade agreement, Woody Johnson, the US ambassador to Britain, said: “I would think so.”

David Henig, UK director of the European Centre for International Political Economy, a trade think-tank, said: “The deal President Trump has in mind seems closer to an abusive relationship with a vulnerable country than a genuine partnership.”

Are US trade experts also wary of Mr Trump’s stance?

Yes. In a world of many disagreements, the vast majority of US economics and trade professionals believe Mr Trump’s trade policies make little sense.

At a conference in April, Dan Price, trade adviser in George W Bush’s White House, said: “For the hard Brexiters or those that imagine a buccaneering free trading UK, I would say the prospect of trade agreements with entities other than the EU . . . is dwarfed by the significance of maintaining frictionless trade with the EU.”

Concerns about the US’s trade stance go much further.

The IMF has taken issue with the president’s claim that tariffs reduce trade deficits, and Adam Posen, director of the Peterson Institute for International Economics said that Mr Trump’s recent threat to raise tariffs on Mexico to reduce migration should make every country think twice about signing a trade deal with the US.

“By weaponising tariffs, Trump makes evident that he is driven in trade policy by his ideological and perhaps political agenda rather than any tactics to improve US bargaining leverage,” Mr Posen said.

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