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US economy

Is the Lighthizer brigade about to charge through London?

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The office of the US trade representative in Washington has issued its negotiating objectives for a possible US-UK trade agreement, ahead of talks that are expected to begin once (and one should say if) Britain leaves the EU later this month.

The list of US goals in a trade agreement with the UK are in many ways predictable. They closely resemble similar lists presented by Robert Lighthizer’s office ahead of negotiations with the EU and Japan, and reflect an attempt by the US administration to satisfy Capitol Hill — and US business — that it will keep their interests at heart in the talks.

UK officials “welcomed” the US move, saying it showed there was a real commitment in Washington to move ahead with a trade pact.

But British negotiators should not be too pleased with what they see in Mr Lighthizer’s opening bid. For one, it reveals that London should not expect soft treatment from the tough Mr Lighthizer once the negotiations begin.

Agriculture could be the biggest source of trouble. While UK farmers are not as obviously protectionist as, say, the French agricultural lobby, they could balk at a vast opening of their market to US goods. This could be compounded by a consumer backlash to the possibility that the British food chain will receive an influx of American genetically modified crops, chlorine-washed chicken and hormone-treated beef.

While the EU has adamantly opposed including any agricultural provisions in its own trade deal with the US, angering American officials, it is unclear whether the UK will have the leverage to do the same.

Another question is whether Mr Lighthizer will try to apply all of the elements of his new, Trumpian free-trade-agreement model to Britain, and how firm his red lines will be in several areas. One is a demand that the UK commit not to manipulate its exchange rate, which could be hard for London to stomach since this might limit the Bank of England’s flexibility and independence.

Limiting the UK’s freedom to engage in trade talks with another economy (the big prize is China) would also be an issue. Such a demand was part of USMCA, the agreement that revised the Nafta trade deal between the US, Mexico and Canada. It would involve Britain briefing the US on the terms of any agreement even before it is signed, and allowing the US to walk away from the UK if unhappy.

It is still not clear how much of a priority a UK deal is for President Donald Trump’s trade team. Once a China deal is sealed, Mr Lighthizer has suggested that Japan could be next on his list, not necessarily post-Brexit Britain.

Critics pounce on trade deal enforcement plan

For months, US officials have stressed that finding a way to enforce any trade deal with China — and ensuring Beijing implements and sticks to its commitments — is just as important as the substance of a pact.

Last week, Mr Lighthizer said a solution on enforcement had finally been reached, and even offered specific details.

Any valid complaints from US businesses that China was not complying with the deal would be raised at monthly meetings among lower-ranking officials of both countries. If there were no solution, a dispute would be raised at quarterly meetings at the vice-ministerial level, and then possibly at twice yearly meetings between Mr Lighthizer and Liu He, the Chinese vice-premier. After that, the US would be allowed to take “unilateral” but “proportional” action against Beijing, probably in the form of a restoration of tariffs.

Critics immediately pounced on the scheme as fairly toothless. The multiple rounds of dialogue resemble the various models of US-China economic engagement that have flourished over the years. And the US has, in any case, the capacity to take unilateral action against China on trade, as it has shown over the past year.

But Michael Taylor, a partner in international trade at law firm King & Spalding, said he was confident this was “more than just dialogue”. One crucial element is whether America’s 301c investigation process into alleged unfair trade practices, which has been the legal basis for its tariffs on Chinese goods, will remain open or be closed after Mr Trump and Chinese president Xi Jinping shake hands. If it is the former, expect a rockier post-deal trade relationship between the US and China.

Figure of the week — $1.4bn a month

The hit to US prices and welfare produced by Mr Trump’s trade policies in 2018, according to research by Mary Amiti of the Federal Reserve Bank of New York, Stephen Redding of Princeton University and David Weinstein of Columbia University.

Chart of the week

Scott Kennedy, of the Center for Strategic and International Studies, on February 25 triggered a debate over the stock market reaction in the US and China to the trade war, pointing out that the Shanghai indices were more sensitive than the New York ones. What do you think?

Further reading

● Can Venezuela by rescued economically? The US is locked in intense conversations about the type of bailout that would be required. Trade will also be part of the talks. (Financial Times)

● Our look at the Vancouver life of Meng Wanzhou, the indicted Huawei finance chief who could upset the trade talks. Also, read our report on Ms Meng’s decision to sue Canadian officers over her arrest. (FT)

● The UK has made it into the WTO’s government procurement pact. (FT)

● The Vietnam model of development as seen by David Dollar, a former US Treasury official. (Brookings)


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