US economy

US-UK trade: a special relationship?


Hello and welcome back to Free Trade — in this case, for the last time. As Alan Beattie wrote on Tuesday, we are shutting down for a week before reopening as Trade Secrets. And we are moving from two to four days a week — doubling down on everything from big high-stakes trade talks to currenciessupply chainstech and everything that will drive the future of globalisation.

It’s an exciting new project and we are interested in your feedback and contributions as we go along. If you receive Free Trade, you’ll automatically be signed up to Trade Secrets. Otherwise, the place to register is here. (In the unlikely event you want to unsubscribe, see the link below.) Thank you for being such devoted readers and see you again soon — before you go, here’s a look at the state of US-UK trade relations.

It was striking to see so many UK products in the line of fire when the Trump administration unveiled the list of EU goods that would be hit with US tariffs in connection with the Airbus case last week. Stilton cheese, Scotch whisky, sweet biscuits, sweaters, suits, nightdresses and bed linen sold from the UK to the US will all be facing a sudden 25 per cent additional duty from October 18. 

That British goods would be targeted in the action, which was authorised by the World Trade Organization, would not ordinarily be surprising given the UK is one of the four EU countries in the Airbus consortium along with France, Germany and Spain. But in the context of Brexit, with the UK set to depart the EU on October 31, it is remarkable.

The Trump administration has signalled it wants to support and encourage UK prime minister Boris Johnson’s bid for a successful Brexit, yet it is treating Britain like any other member of the bloc — if not worse. It’s no wonder that Gary Smith, secretary of trade union GMB Scotland, said this represented a “troubling glimpse into the post-Brexit future” for the UK.

“There is simply no such thing as a ‘special relationship’ with the United States — Trump will squeeze the UK economy for everything he can get,” Mr Smith added.

Some in the US certainly feel that moving quickly towards a trade agreement with the UK makes good political and economic sense and are willing to take steps to speed up those negotiations in the coming months. But the time is coming for officials in Washington to prove they are prepared to follow through with this preferential treatment.

America’s goodwill on trade towards the UK — and Donald Trump’s towards Mr Johnson — is facing some critical early tests. First, if the Airbus levies are imposed as planned at the end of next week and the UK leaves the EU on October 31, will Washington reverse course and exempt British products from the list? Officials have said they reserve the right to change the composition of their punitive tariffs in response to changing circumstances and a British exit from the EU would certainly fall into that category.

The second big test could come as early as November. That is the deadline for Mr Trump to decide whether to slap tariffs on automotive imports on national security grounds. Within Europe, Germany has the most to lose if Washington moves forward with car levies, but UK auto exports to the US are not insignificant, particularly in the high-end segment, as well as in auto parts which would also be affected by such a move. 

Britain would not be immune from these potential tariffs even if it has left the EU by then because their application would be global. In its mini-deal with the US last month, Japan secured a commitment of sorts to be exempted. Canada and Mexico are also expecting a reprieve based on the terms of their deal with Mr Trump to revamp Nafta. But the UK has received no clear reassurance that it will be spared from the levies. If Mr Trump does not offer immunity to Britain on either Airbus or car levies, it bodes poorly indeed for future negotiations with London. 

In reply

Post-Brexit Britain’s troubles in Washington won’t end with an administration hitting it with Airbus sanctions, writes Free Trade co-author Alan Beattie in Brussels. If it wants a trade deal with the US, it needs to get it through the Hill. And Congress — much more so than, traditionally, the administration — is the redoubt of the Irish-American caucus in DC.

When House speaker Nancy Pelosi repeatedly says Congress would block any US-UK free trade agreement that violated the Good Friday Agreement, she is not making a random assertion — the stance is the outcome of some persistent lobbying, including by the Irish government, to prevent a hard Brexit threatening the peace deal.

A group of Republican senators led by Arkansas’ Tom Cotton, who are traditionally more sympathetic to the UK because of the national security links, tried to push back a bit against this in the summer with a letter of support to Boris Johnson. But will that be enough to overcome the Irish interest? In letters 10 metres high in the colours of the Irish tricolour: no, it will not.

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The number: $700bn

The estimated cost of trade tensions, including uncertainty, on the global economy by 2020, according to Kristalina Georgieva, the IMF chief

Chart choice

America’s Gini coefficient, a measure of inequality, has kept rising, unaffected by US president Donald Trump’s trade policies.

Further reading

● Washington’s new double-punch in the trade talks — US visa bans on Chinese individuals tied to human rights violations in Xinjiang, after blacklisting top tech companies (FT) 

● High on chocolate: cocoa is one of the top performers in the commodities markets (Wall Street Journal)

● The World Trade Organization’s world trade report for 2019 — just the key facts and executive summary — especially for those of you attending the public forum in Geneva (WTO)





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