Economics

The hidden perils of a trade deal with Trump

A free trade agreement with the US is considered a key post-Brexit prize. But the negotiations will be fraught with danger and Britain is not prepared

May 17, 2019
He will drive a tough bargain. Photo: KEVIN DIETSCH/UPI/PA Images
He will drive a tough bargain. Photo: KEVIN DIETSCH/UPI/PA Images

Trade has never been in the news so much. The cause is Donald Trump. The furious tariff war between China and the US dominates headlines and its economic consequences could be profound. Meanwhile the US president has forced a renegotiation of NAFTA and is undermining parts of the World Trade Organisation. He is destabilising the entire trading system.

Yet it is against this troubling backdrop that Britain will seek to strike a trade deal with the US president. After Brexit we will, in theory, have the freedom to sign new agreements. A US deal is held up by Leavers as the ultimate prize: it is a huge market to which we could win new access. For sceptics, however, the dangers are increasingly obvious: the president boasts about putting “America first”—and other countries last.

The issue has never felt more pertinent. So should we really pursue a trade deal with Trump? What would the president ask for in return? And where does the infamous "chlorinated chicken" fit in? Having spoken to leading experts, I would argue that there are dangers ahead. Trump could demand the impossible. We are about to find out Britain’s new place in the global pecking order—and whether the “special relationship” is really so special after all.

The politicians of course are keen to signal that all is well. Last year International Trade Secretary Liam Fox wrote for a US audience: “Brexit has given us a once-in-a-generation opportunity to raise [our relationship] to a new level.” Even Trump has sounded intermittently positive. A trade working group has been established between the two countries. And as Fox pointed out when I visited his office for a wide-ranging interview in the spring, “we’ve got a strong relationship with the US” already. Trade between the two countries is worth $160bn a year. Not to mention the historic security links.

There is no shortage of general enthusiasm. Andrea Leadsom, another leading Brexiteer, previously told me a “key advantage” of Brexit “is being able to sign our own free trade deals.”

But a formal free trade deal is its own beast. To deliver greater market access there must be new negotiations. The US is an economic giant and Trump’s demands on Britain could prove very tough indeed.

For Malcolm Rifkind, former foreign secretary, “I don’t see any reason to believe that the US is going to come up with such a fantastic set of offerings while demanding nothing in return.” According to customs consultant Anna Jerzewska, the reality is that “any trade negotiations require concessions. The ones with the US would be no exception.”

“You obviously have to give ground on something if you want something” was how Fox put it, adding we would only lower standards “if we agreed to them.”

But this is where the problems start. Modern free trade deals are not just about lowering tariffs, but also the “harmonisation” of some rules and regulations. That is often more controversial, and in a deal with the US—a country used to getting its own way—guaranteed to be a sticking point.

Trump could insist we lower food standards—the source of panicked headlines about chlorinated chicken. Sam Lowe at the Centre for European Reform confirmed we could be asked to “remove existing bans on certain food products.” David Henig, former assistant director in Fox’s department, added “there must be something for their agricultural lobby.”

This is standard for US agreements. Britain is unlikely to be given an opt-out for old time’s sake.

Yet to say that would be contentious in the UK is an understatement. There are worries chlorine washing could damage the natural environment and increase the risk of food poisoning. Though the evidence is mixed, since the horsemeat scandal food safety has been a point of public anxiety. Yet when the US published its negotiating objectives for any deal with the UK there was alarm. The document said that we must “remove expeditiously unwarranted barriers that block the export of US food and agricultural products.”

This is problematic enough, and far from what voters have been led to expect. But there is a second, related, difficulty that speaks to another point about modern trade: the need to pick a side. Say we did accept Trump’s demands on food standards. Not only would that prove unpopular at home, it could also prove deeply unpopular with the EU. The argument runs that one deep trade agreement could rule out the other. Henig said “the [US] asks are in tension with the asks of the EU in free trade agreements.” The EU could be hesitant—or simply unable—to negotiate on certain points because the US will have put its own conflicting demands on British firms. Jerzewska shared this concern.

What to do? The bottom line is the US could insist its central demands are met. There are basic power dynamics at play because the American economy is seven times the size of our own. Do we have any room for pushback? Could we take the parts of the deal we like and leave those we do not? That seems unlikely. Even China is struggling to secure favourable terms.

The question then is whether we should walk away to focus on other markets. This is my own view and I suspect the public will begin to feel the same way. But there is also the argument, worth listening to, that beggars can’t be choosers. Having severed links with our largest market, the EU, we will be desperate to land new deals. The prospect of a shiny new FTA could prove hard to refuse—whether that stores up problems for the future or not.

However, the government should not lose perspective. Would the concessions really be worth it? For Leavers the economic case for a deal is obvious. Prominent Brexiteers like Tory MP Jacob Rees-Mogg frequently emphasise the opportunities in the US, and prefer their free market model.

But for others the numbers do not add up. Rifkind told me: “I am very positively in favour of having the opportunity, if we can, to have free trade agreements with the US and other countries. But if for the time being that would create more problems than it would solve, then we might have to defer that luxury. We do 40 per cent of our trade with the EU, much more than we do with the US.”

We cannot rely on America to “fill the gap.” Lowe added “estimates tend to predict that a comprehensive US agreement would result in long-run British GDP being 0.2-0.35 per cent larger than it would have been otherwise.” That would not nearly compensate for the loss of frictionless trade with Europe.

There are plenty more concerns when it comes to dealing with Trump. US interference in the NHS for example. Yet ultimately any judgment will have to look beyond things like product regulations, bargaining power and even the wider economy, to what sort of a country Britain wants to be. Having left Europe we must find a new role in the world. For some, we should seek to recapture our proud entrepreneurial history. And according to Fox “we are instinctively a free-trading nation.” But there is also the question of values. Just what sort of countries should a post-Brexit Britain be cosying up to?

The US president is a profoundly unpredictable actor. He is violating international norms and recklessly dismantling global institutions such as the WTO. According to former deputy PM Nick Clegg, who I met with before his move to the US, “we all are underestimating quite what an existential challenge [Trump] is to some quite profound principles of rule-based governance.”

The question must be whether Britain’s best interests are ultimately served by cosying up to such a man at the expense of other relationships. For some Brexiteers there is no issue. For others, the question will answer itself.