UK aims for a US trade deal – motherhood and apple pie?

The government today published its negotiating aims for a US trade deal. As with the EU mandate, this is a very political document. It is also relatively low in ambition. The main aim seems to be to reduce tariffs, with the UK offering little to entice the US to change regulatory barriers to trade. On the two most controversial areas, food standards and the NHS, the mandate says that the UK “will not compromise on our high environmental protection, animal welfare and food standards”, and that the “the price the NHS pays for drugs…[and]…the services the NHS provides …will not be on the table.” Taken at face value, those positions alone would likely rule out any ambitious market opening deal with the US. The government says that the prospective benefit of a US trade deal is relatively small – 0.2% of GDP, and that assumes some tariff reductions. Interestingly, this is from the same Treasury analysis that says that the cost of the Canada-style free trade agreement the government wants with the EU would outweigh potential US trade deal gains by orders of magnitude (a hit of around 5% to GDP growth, without any changes in migration policy).

What does the government want from a US trade deal?

The mandate sets out a wide-ranging but fairly standard set of trade deal asks, including:

·        reduce or eliminate tariffs for goods – but even here, with a caveat on recognising sensitivities around British agriculture; 

·        simplify customs procedures;

·        making it easier for UK manufacturers to have their products tested in the UK against US standards before export (which the US is unlikely to grant);

·        speed up US approval of agri-food exports;    

·        non-discrimination in services markets, and supporting mutual recognition of profession qualifications – but nothing on visas;

·        seek the reduction or abolition of restrictions to accessing the US data market – while protecting “the UK’s high standards” of data protection;

·        non-discrimination on investment;

·        protection of IP rights, including geographic indicators for food (which the US opposes);

·        “explore the scope for industrial subsidies” that promote fair and open competition;

·        Secure better than WTO access to government procurement.

How realistic is this?

We have known the US aims for almost 18 months, and there are few surprises in its mandate. A basic trade reality is that the US barely negotiates on trade, certainly not with smaller partners; it imposes. It remains very unlikely that any serious market opening would be on offer without the UK opening its food market to US farm produce, and without opening up NICE's drug pricing criteria, and access to patient data beyond what the GDPR allows.

More broadly, the US position is driven by trade politics. Trump backs Brexit for many reasons, some ideological. Strategically, it offers the White House the chance to weaken the EU as a trade negotiator and rival, and to open UK markets to its farmers, pharma companies and others.

That brings in a wider prize, of pulling the UK into the US orbit politically, and away from the EU – on Iran, on dealing with China, and on regulation. Hence the White House anger at Boris Johnson's decision to allow Huawei into UK mobile networks, and on UK declared plans for a digital tax. In the wake of these decisions, leading members of the Trump administration stated that the UK was behind the EU in the line for a trade deal, and that a UK digital tax would lead to tariffs on cars and car parts.

A (very) limited deal is possible this year

Politics for both Johnson and Trump could still point towards a deal this year; a US trade deal is a totemic benefit of Brexit for many Conservatives, and Trump wants to show that he can do trade deals with rich economies which protect US producers. But if so, it will almost certainly be a very thin deal, more political window dressing than market opening. What could that look like? Some mutual recognition of assessments, perhaps some exemptions for UK products from Trump tariffs. Above all, perhaps, a promise that this is phase 1 deal, with more to come; the US Presidential election is a convenient excuse for both sides to postpone more sensitive issues. But regardless of who next occupies the White House, any market-opening trade deal will almost certainly come down to whether Boris Johnson is prepared to compromise on chlorinated chicken, hormone-treated beef, and the NHS drug-pricing and data. At the moment that looks very unlikely.

How should businesses position themselves?

The government will be very keen for businesses to engage positively with the potential benefits of a US trade deal. There could be easy wins here for business in building goodwill with DIT and other parts of government, but businesses should be aware of the reputational risks in terms of domestic UK politics – not least because it is not yet clear how much political capital the government will risk for anything more than a nominal trade deal. Businesses should, in any case, have a clear public position which they are prepared to explain and defend before Parliamentary Select Committees, who will be closely following the trade talks and keen to interrogate what businesses stand to gain or lose from the key trade deals.