Washington Post | 11 June 2020
What Trump, Johnson want from US-UK trade deal
By Sarah Babbage | Bloomberg
The unconventional leaders of the U.S. and the U.K. have both made big promises about a post-Brexit trade deal between their nations. Securing a pact won’t be easy. The two sides disagree on issues ranging from chicken to 5G. Plus, President Donald Trump is seeking re-election in November (meaning negotiations might finish under a different U.S. administration), and the U.K. can’t finalize a comprehensive deal with the U.S. until it figures out its post-divorce relationship with the EU.
1. Why is this an important deal?
For Prime Minister Boris Johnson, a trade deal with the U.S. could help vindicate the long and messy Brexit ordeal. One premise behind the decision to leave the EU was that the U.K. could make trade deals that would benefit it more than those negotiated by the EU. For Trump, it’s a chance to prove that bilateral deals benefit the U.S. more than the multilateral coalitions he scorns. It’s also another chance to repudiate his predecessor, Barack Obama, who warned ahead of Britain’s 2016 Brexit referendum that the U.K. would put itself at the “back of the queue” for a trade deal if it decided to leave the EU.
2. Is the U.K. ready to deal?
It’s officially left the European Union but remains a member of the European single market and customs union — and therefore subject to its tariffs and trade deals — through the end of the year. As long as it’s in the customs union, any deal with the U.S. would be limited to areas such as services, government procurement and intellectual property rights, according to the Congressional Research Service. With neither the U.K. nor the EU showing an inclination to compromise on the economic terms of their divorce or extend the transition period, the likelihood of the U.K. leaving the customs union at the end of the year is growing.
3. Is the U.S. ready to deal?
Trump is looking to shore up deals ahead of the presidential election, and his advisers say the big differences between the countries can be overcome. But a comprehensive deal would need to be approved by the U.S. Congress, a months-long process unlikely to occur in the midst of a campaign. (A limited deal on financial services could move more quickly.) Also, U.S. lawmakers may prefer to wait to see what concessions and regulatory changes emerge from U.K.-EU negotiations. Some have warned that they wouldn’t support a deal if the outcome of Brexit puts at risk the Good Friday Agreement that ended the conflict in Northern Ireland.
4. Are the U.S. and U.K. major trading partners?
They conduct significant trade — $270 billion in 2019. The U.S. is the largest destination for U.K. exports after the EU. The U.K. is the fourth-largest destination for U.S. exports, after Canada, Mexico, and China. Trump said the deal “has the potential to be far bigger and more lucrative than any deal that could be made with the EU,” but the U.K.’s estimates are modest: It estimated in March that a comprehensive agreement would boost its gross domestic product by 0.16%, increase wages by 0.2% and save the average household about 8 pounds ($10) per year on tariffs. That wouldn’t be enough to offset losses projected under almost any new arrangement with the EU. Nor would it offset the pandemic-induced recession that forecasts show could be the worst in 300 years.
5. What does the U.K. want out of the deal?
A priority will be getting Trump to back off punitive tariffs. The U.S. has charged tariffs on U.K. steel and aluminum for two years, imposed tariffs on Scotch whisky and other U.K. products in retaliation for EU subsidies to Airbus SE and threatened tariffs on cars from the U.K. and EU. A second U.K. objective is to integrate the two countries’ economies, including the digital and financial sectors, without giving in to the U.S. goal of obtaining “full market access” for its drugs and medical devices, which in the U.K. are overseen by the treasured National Health Service. “The NHS is not, and never will be, for sale to the private sector,” the government wrote in its negotiating objectives.
6. What does the U.S. want?
The Trump administration expressed alarm at the U.K.’s decision to include Chinese company Huawei Technologies Co., which U.S. officials see as a security threat, in development of the British 5G network. (Johnson’s government is now reviewing that decision, after senior members of his Tory party raised concerns.) The U.S. may also use the trade talks to advance its opposition to a U.K. digital services tax that’s likely to hit big American companies such as Amazon.com Inc. and Facebook Inc. The Trump administration is conducting an investigation into the tax that could lead to steep tariffs on vehicles, which are the U.K.’s top export to the U.S.
7. What are the sticking points?
There’s the potent issue of chlorinated chicken and hormone-treated beef, a long-term source of strife between the countries. The EU banned chicken washed in chlorine in 1997 over concerns that the chemical may not be safe to ingest and is used to compensate for poor animal hygiene conditions, such as overcrowding. U.K. officials have promised to “hold the line” on their current food-safety rules, but they may consider letting products that don’t meet their standards in at a higher tariff rate. Second, the U.K. wants the deal to advance its goal of reaching net-zero emissions by 2050, which could include, for example, promoting trade in carbon-neutral goods. That’s a tall order with the Trump administration, which withdrew the U.S. from the Paris climate accord and has rolled back environmental regulations. U.S. Democrats and environmental groups were unsuccessful in pressuring the Trump administration to include climate provisions in its rewritten trade deal with Canada and Mexico. A 2015 law also bars the U.S. from entering into trade agreements that set obligations for greenhouse gas emissions.