As July came to a close, Donald Trump had one more surprise in store for the month. In a joint press conference with European commission president Jean-Claude Juncker, in the rose garden of The White House, Trump announced that the two leaders had had a ‘big day, very big’ of Brexit trade talks.
Taking a step back from the brewing trade war between America and the European Union, Juncker and Trump revealed that they were now working towards a future of zero tariffs, barriers and subsidies between these two markets. Signalling a new phase in trade relations, the move seems, on the surface, to be a highly positive step forwards.
But what does this mean for Britain? Siddharth Shankar, CEO of Tails Trading, which helps UK SMEs to export their goods to Asia, says, ‘In just seven months we’ll be exiting the European Union and, more than likely, the European single market and customs union with it. Thus this comes at a time when the UK government is scrambling to forge and strengthen international trading relationships and secure beneficiary trade deals with the clock ticking.
‘How would an EU-US trade deal impact our likelihood of agreeing a deal with the US, the EU and, indeed, the rest of the world?’
Our two most important trading relationships
The EU and the US are currently our two most important trading relationships. As a single country, America is the UK’s single largest trading partner, while, as a bloc, the EU is by far the UK’s biggest trading partner. Almost half of all the goods the UK exports are bound for fellow EU countries.
No deal with the EU could be disastrous and failing to reach a beneficiary trade agreement with the US could also have a serious impact on how the UK economy performs, Shankar says.
Yet, despite what’s at stake, fears that we’ll be be leaving the EU with ‘no deal’ and that we may find ourselves falling back on trading on World Trade Organisation terms are growing, he adds.
Regarding a possible UK-US trade deal, confusion abounds. Trump has made conflicting comments on this. During his visit to the UK earlier on in July, in an interview with The Sun, Trump asserted that the government’s Brexit White Paper would ‘probably kill’ a US-UK free-trade deal. Yet then, in a subsequent press conference with Theresa May, he asserted that such a deal was still ‘absolutely possible’.
‘By comparison, Trump and Juncker’s progressive talks, especially since they began from such a hostile position, are an embarrassing blow,’ Shankar says. ‘The EU now looks like it could be making more progress towards securing a free trade deal with the US than the UK.
‘This is despite the significant efforts of Theresa May to woo Trump with a UK visit, and even meeting the Queen, for which she faced such intense criticism. Instead, Trump’s focus seems to be elsewhere. Are we now finding ourselves at the back of the queue, as Obama prophesised before the Brexit vote?’
Part of the EU – or standing alone
The contrast between being part of the EU or standing alone, if the EU and US reach a free trade agreement, will feel even greater, Shankar feels. What’s more, for many Remainers, a US-EU tariff-free trade deal would have been another enticing benefit of being part of the EU that they’ll now be excluded from.
‘One thing seems certain, if the deal does come into fruition, it will ramp up the already significant pressure on the UK government to strike a similarly beneficial deal with both the US and the EU.’
However, there is another side to the coin, Shankar says. ‘Firstly, it’s important to note that, although EU-US zero-tariff trade is a welcome idea for both countries, the deal might well be lacking a bit of sincerity. To begin with, the EU has agreed to buy billions of dollars’ worth of US import goods, including soya beans and natural gas, while there has been no such promise from the counter party.’
“A truce between the EU and the US would mean more pressure from the US on China and its related economies during this time”
Furthermore, there are currently no timetables, details or mechanisms in place to ensure this agreement comes into fruition. ‘As it stands, this agreement would only give Trump a better negotiating chip. It’s undeniable that the deal signifies progress and a precious truce in the current international economic situation, however I’d urge on the side of caution in predicting its longevity.’
We must not panic
Secondly, we need to be careful not to panic. The UK does still have enough time to establish its own trade deal with the EU, Shankar says. ‘There is also still enough time to establish trade deals with the countries in the EU individually, rather than in a bulk, which would give the UK a better approach and make us more likely to reach a deal that’s mutually beneficial to both parties and sustainable over a longer term.’
Thirdly, if you look outside of the EU, this deal would actually give the UK a head-start in establishing trade deals with South-East Asia countries, he adds. ‘Asia is becoming increasingly important to UK trade and as South-East Asia’s economy grows, these countries are set to become lucrative trading partners for the UK.
‘A truce between the EU and the US would mean more pressure from the US on China and its related economies during this time.’
While the US and China tie themselves up fighting each other, the South-East Asian countries would be likely to feel insecure – fearing collateral damage from the world’s two giants throwing tariffs across borders. This is likely to make South-East Asian countries more open to forming strong trading relationships with the UK.
Similarly, China would be more likely to agree on a better (and fairer) trade deal presented by the UK in this scenario, Shankar believes. ‘They will likely realise an EU-US zero-tariff deal would not only put the pressure on to its exports to the US but also take away its trade parties from Europe.
‘UK market and UK export goods (agriculture goods and industrial goods alike) would prove to be vital to its economy and sustainability for the future five to ten years. It will have to be more open than ever towards the UK if a new trade deal had been made.’
As such, if handled correctly by the UK government, a deal could actually be beneficial to the UK.