The critical need: Decisive leadership on Pan-European and Trans-Atlantic trade policy.
Mark Kleinman November 29, 2020
The coming 60 days present critical watershed opportunities for the future of trans-Atlantic trade.
With just one month to go before Great Britain comes crashing out of the EU, European and British negotiators continue to work at finding common ground for an exit agreement. While a Brexit deal is fraught with political risks on both sides of the English channel, it is particularly important to the UK economy.
Time is running out if an agreement is to be ratified by the European and British Parliaments before the December 31st deadline. There are still significant gaps between the two sides on issues including governance and penalties for non-compliance, state aid, and the sensitive issue of commercial fishing rights.
Fishing has a hold on public imaginations, and in the U.K. is more important politically than economically. Boris Johnson promised sovereignty to the UK fishing fleet prior to the 2016 Brexit referendum. If he does not deliver, he risks accusations of betrayal. French president Emmanuel Macron will also struggle to compromise on the fishing issue, as he faces an election in 2022. Giving in to the British on fishing will certainly cost him votes in France. Without a Brexit agreement, Britain would regain full control of its coastal waters and could ban French and continental fleets from them.
Cutting a deal with the EU is a complex challenge for Prime Minister Boris Johnson that has become even more urgent with Joe Biden preparing to occupy the White House on January 20th, 2021.
Few world leaders have felt the changing tides of President-elect Joe Biden’s victory more than Prime Minister Johnson. Battered by the economic upheaval from the coronavirus pandemic, British businesses are desperate for a Brexit agreement that would limit further disruption beginning in January 2021 when the U.K. exits Europe’s trading system. A failed negotiation will further damage the U.K.’s weakened economy and will likely expose tensions with Biden. Mr. Biden opposed Brexit. He is unlikely to make a trade deal with London as high a priority as Mr.Trump would have, raising alarm about the strength of the “special relationship” between Britain and the United States.
The Johnson-Trump vision of a British-American “Anglosphere” as an alternative to the E.U. underpinned the Prime Minister’s election promise to “Get Brexit done”. Mr. Biden however will have broader priorities as he strives to return the United States to its “Pax-Americana” role in the world. In this context, a free-trade agreement with Britain may not be seen as a big prize and might be counter-productive to Biden’s agenda.
Prime Minister Johnson is trapped in the midst of a U.K. population that is weary of both Brexit and Covid-19. While Mr. Johnson will face political wrath if he is seen as caving in to E.U. demands, he must be prepared to make the difficult choice of playing the cards he’s holding and cutting a mutually-agreeable deal with the E.U. Britain cannot afford the luxury of hoping that a hurried attempt to forge a free trade deal with the new U.S. administration will fast track through Congress and cure the U.K.’s long inability to come to Brexit terms with the E.U.
Well aware of the dilemma, financial markets have soured on U.K. stocks amid rising Covid-19 infections and deadlocked Brexit talks. The U.K.’s FTSE 100 index, the benchmark for the largest British companies, has plunged -16% in 2020 year-to-date. In contrast, the Stoxx Europe 600 has slid -6%, the German DAX is flat, and the U.S. S&P 500 is +12%. In the USA, the Dow Jones average reached an all-time high of 30,000 just before Thanksgiving.
President-elect Biden has said that his administration will immediately rejoin the Paris climate accord and rescind plans to withdraw from the World Health Organization. Biden’s priority will be to assure allies that America has their back’s, and he will work to rebuild alliances with other democracies. As Mr. Biden works to relaunch the Obama-Biden global agenda, there is no better place to begin than with trade. Trade policy is the area where Biden can most speedily and decisively exert his leadership as he will largely be able to act unilaterally, without the need for Congressional buy-in.
The President-elect will inherit a U.S. trade policy characterized by tariffs on global imports—on steel and aluminum from most of the world, and on nearly three-quarters of everything the U.S. buys from China. The U.S. has imposed tariffs on $7.5 billion of European products, including 25% tariffs on products including wine, cheese, olives and liqueurs, as well as 15% tariffs on airplanes. Earlier in November the European Union announced it was moving forward with tariffs of its own on $4 billion of Boeing jets and with a 25% duty would on import of American tobacco, nuts and seeds, spirits, sauces, soups and syrups, tractors and proteins.
Eliminating the U.S.- E.U. tariffs would represent a big win-win for both, creating a solid platform for a reboot of Euro-American cooperation. The Airbus-Boeing dispute is one of the keys to the U.S./ E.U. trade relationship. Both the Europeans and the Americans have subsidized aviation research and there is now a clear opportunity to drop tariff countermeasures and reset to rebuild.
European officials are hoping for a speedy settlement with the U.S. that would end the tit-for-tat tariffs, perhaps even before President Trump leaves office. They hope pressure from affected industries in the U.S. will prompt progress before Inauguration Day and that President Trump will want this as part of his trade legacy.
The new Biden administration will also need to quickly address a failing, distrustful relationship with China. Expect Biden to take a tough but consistent stance with China. The U.S. has tariffs in-place on $370 billion of imports from China, despite the phase-one trade deal signed by President Trump in January 2020.
Decisive leadership is the essential ingredient needed to help British, European, American, and Chinese economies recover from the wreckage of Covid-19 and from economic damage inflicted by overt nationalism. I’m hopeful that more cooperative trade policies can be the backbone of greater inter-dependance and economic development across the Atlantic and across the world. These next 60 days will set the stage for years to come.