From the back of the queue, to the front. A change in US President has seemingly made all the difference to Britain’s prospects of winning a post-Brexit trade deal with the US. Ahead of the referendum, President Obama, egged on by a pro-Remain UK Government, insisted that we’d be at the back of the queue. President Trump, and now his National Security Advisor, John Bolton, have promised to put us at the front.
This is potentially a big thing. A free trade deal with the US, it can be argued, might partially substitute for the frictionless trade Britain is about to lose with Europe. The White House’s apparent enthusiasm for a deal could also prove useful in persuading the EU to come back to the negotiating table.
The EU is terrified of the UK’s lucrative markets being drawn into Donald Trump’s orbit; Bolton’s siren calls suggest just that. By refusing concessions on Brexit, the EU risks losing Britain’s profligate consumers altogether.
Mr Bolton goes further. Briefing journalists in London this week, he suggested that in order to get around the usual stumbling blocks to free trade deals - highly protected agriculture and service industries - the deal could be done on a “sector by sector” basis, starting with manufacturing. Even the BBC seems to be in a state of child-like anticipation at the prospect, to judge by its reporting of it.
I hesitate to be the one to pour a bucket of cold water on this growing sense of excitement, but...
Mr Bolton presumably knows his stuff when it comes to national security, but he plainly has very little idea about trade. His “sector by sector” suggestion falls at the first hurdle. Under World Trade Organisation rules, explains Lorand Bartels, lecturer in international trade at Cambridge University, you cannot normally discriminate between trading partners.
Offer a special favour to one nation, and you have to offer it to all other WTO members. This so-called “Most Favoured Nation” principle is there to ensure that trade remains as open and free as possible.
There are, however, exceptions, one of which is a bilateral free trade agreement. But here’s the problem. The rules stipulate that such FTAs must cover substantially all trade between the two nations, usually defined as about 90pc of it. If partial arrangements were allowed, it would open the door to precisely the sort of discrimination the rules are meant to outlaw. On the face of it, then, Mr Bolton’s suggestion is a non-starter.
True enough, the WTO is a declining force on the international stage, largely thanks to the US, which in its trade war with China and refusal to endorse key appointments has ridden rough-shod over its conventions. Mr Bolton doesn’t much care for multilateral organisations in general, so presumably holds the WTO in the same contempt as the United Nations, where he was once disruptively US ambassador.
The UN may well deserve it; but the WTO, which the Trump administration has tried to undermine at every available opportunity, does not.
In the aftermath of a no-deal Brexit, the UK will have to rely heavily on the WTO to defend our access to international markets. Most Brexiteers regard the protections it provides as a perfectly acceptable alternative to the sometimes stifling embrace of the EU. If the WTO is about to be thrown to the wolves, leaving the UK entirely dependent on bilateral free trade agreements to prevent discrimination against its goods and services, our export industries could be in some difficulty.
Unlike the US, which is a huge and largely self contained economy, the UK is open and highly dependent on trade for its well being. With its “Global Britain” pretensions, it is vital to the health of the UK economy that some kind of rules-based international trading structure is defended and maintained.
As it happens, the US is already Britain’s biggest single export market by far. The UK sold £112bn of goods and services to the US in 2017, or around double its next biggest market, Germany. What is more, the US is one of only two major markets with which Britain enjoys a current account surplus, though it might be as well not to mention that to President Trump, for whom a surplus with the US is regarded as a kind of provocation. Fortunately, the US’s own trade figures find that it is they who have the surplus, not us, so probably best to let Mr Trump carry on believing it.
In any case, it seems unlikely that already relatively buoyant British exports to the US are going to be significantly boosted by a plain vanilla American FTA, and almost inconceivable that such a deal could of itself substitute for the favourable terms of trade the UK currently enjoys with the EU. Australia’s Productivity Commission found that trade with the US had actually shrunk since Australia signed a US FTA more than ten years ago. The hoped for boost to beef and sugar exports failed to materialise, prompting opposition MPs to demand of the FTA: “Where’s the beef?”
That particular trade deal also raised another issue of concern - that many such bilateral agreements are not really about trade at all, but wider geo-political pursuits and quid pro-quos. In Australia’s case, the trade deal was framed directly as a reward for Aussie participation in the Iraq war. Donald Trump has likewise shown himself more than ready to use trade as a way of applying political pressure, directly threatening Mexico with curtailment of its trade privileges if it didn’t support him on illegal immigration.
Use of Mr Bolton, an extreme hawk on both China and Iran, to blaze the trail on a trade deal with the UK is perhaps a harbinger of things to come. There is a real danger that a US FTA becomes linked to adherence to America’s wider foreign policy aims. As America’s greatest ally, it may well be that Britain would want to support these purposes anyway, but it is essential that the two are not conjoined, or we merely swap one enslavement for another.
The whole point of free trade deals and rules is that they protect against the use of trade as a geo-political weapon. Without those protections we re-enter an unstable, pre-war age of shifting international alliances and arm twisting. That’s not a good place to be.
In an effort to insulate consumers from the inflationary impact of tariffs, the UK Government has announced that for a trial period of up to a year Britain will essentially become tariff free after a no deal Brexit, with the exception of a relatively small number of products where indigenous industries would struggle without protection - automotive, meat, dairy, ceramics and so on. Regrettably, this gives the US very little incentive to agree a meaningful free trade deal, since it would already have tariff free access to UK markets without having to negotiate it.
All over the shop, then, Britain’s emerging trade policy looks incoherent, not properly thought through, and just a little bit desperate. It may be that regardless of the machinations of Brexit, we are in any case sliding into a less globalised, more siloed, every-man-for-himself world in which the old rules based system no longer matters. But this can scarcely be regarded as a healthy development.