Businesses cast doubt on UK-US post-Brexit trade deal

Bloomberg

The transatlantic trade deal US President Donald Trump is offering UK Prime Minister Theresa May will ultimately prove easy to promise and hard to deliver. That’s the warning of business leaders and trade analysts after Trump told May last week that the post-Brexit accord she hankers after can be lined up “very, very quickly.”
The challenge for the UK with talks set to begin this month is that America boasts more leverage and negotiating know-how than the UK does. That will potentially force May to compromise on areas such as financial regulation and food standards to land the agreement she needs.
“The UK must be absolutely desperate to demonstrate that it’s able to get something from the United States,” said Peter Holmes, an economist at the Trade Policy Observatory, a research group. “The US will make demands that even a desperate British government won’t be able to accede to.” While the UK can’t formally sign deals with other countries until it leaves the EU in March 2019, it can prepare the groundwork in the hope of ratifying them soon after. Conversations with the US are set to begin on July 24.
Trade between the US and the U.K amounted to a surplus 37 billion pounds ($47.6 billion) a year as of 2015, according to Britain’s statistics office. By contrast, the US Bureau of Economic Analysis calculated a surplus of $11.9 billion in the same year, providing an awkward starting point, with both countries claiming to export more than they import from each other.
“The USA. has one of the best negotiating teams in the world in terms of trade deals,” Paul Drechsler, president of the Confederation of British Industry, a lobby group, told Sky News. “We don’t want to walk into a bear hug and I would be wary of trying to be too fast. A trade deal is a dog-eat-dog activity; it’s not a diplomatic activity.”
The UK may already have a taste of things to come from the inability of the EU and US to agree a trade deal. Those talks have been on hold since Trump took power in January amid differences over data privacy and the rolling back of financial regulations among other issues.
“You’re starting from the same point and the same issues are going to come up,” said Joseph Francois, managing director of the World Trade Institute, a group at the University of Bern.
“There are bigger potential gains from doing a deal with Europe than with the UK on its own, just because Europe is a bigger market,” said Thomas Sampson, an economist at the Centre for Economic Performance. “The flip side of that would be that because the UK is just one country rather than a block of 27 countries it should have more flexibility.”
The UK is already viewing a pact as a way for London-based banks to secure easy access to Wall Street, according to International Trade Secretary Liam Fox. Yet that might require the UK to accept weaker rules on finance, less than 10 years after the financial crisis.
Agriculture could also emerge as a sticking point, according to Holmes. “You can see a Trump administration coming to the UK and demanding a loosening of sanitary regulations on food, demanding that the UK allow hormone-treated beef to be sold in the UK and for the UK to accept GM crops,” he said. “There will be quite a reaction against it.”
Another wrinkle could emerge if the US tries to win access for its companies to Britain’s state-run health service. May declined to say in January whether the National Health Service would be off-limits for a trade deal although June’s election may mean she has less room to maneuver on that now.
Still, the effort will be worth it, said Gregor Irwin, chief economist at Global Counsel, a consultancy. He identified the US as one of the UK’s prime targets for striking a deal. He calculated that the total value of US imports expanded faster than those of other major economies between 2010 and 2015 and that although the US has modest average tariff barriers with the UK, the scale of trade means current barriers are still significant.