Should the UK Prioritise the US over the EU?

At this point, no

Last week I wrote why I felt that a second Trump term would likely be a disaster for the UK’s trade interests. I stand by this but, as we don’t know exactly what he will do, and the fact that this is the reality we are all now living in, it’s time to get practical. 

While I really don’t think a comprehensive FTA with the US is likely to materialise, the UK government should still pursue one. At some point this week I will write something on why a comprehensive FTA is better for the UK than many of the alternatives, despite all of the trade offs this would involve. I do think that it would bring significant benefits for the UK and would actually be a ‘Brexit Benefit’.

However, given that we do have to navigate the world we currently live in as opposed to the one we may wish that we inhabited, it would be foolish to forget that the EU is still the UK’s most significant trading partner and this isn’t going to change anytime soon and so we should not pursue a trade deal with the US if it comes at the expense of causing a lot of damage to our relationship with the EU. 

Here are four reasons why.

First, Trump, while largely following through on what he says he is going to do, is mercurial and bombastic. He happily uses the immense might of the American economy to insist that long standing trade deals are renegotiated if he thinks they no longer serve America’s interests. The replacement of NAFTA with (the inferior) USMCA being a prime example of this but he’s also happy to disregard important institutions such as the WTO if it helps him to get his own way. Does the UK really want to risk damaging relationships with other trading partners in order to please Trump when there is a significant risk that even if we do agree a deal only for it to be discarded due to some perceived slight? What is more, we do not know who will be in the White House in the future but unless something very weird happens, there is not going to be a third Trump term. It is obviously welcome that the US President does appear to be an anglophile who is keen on striking some kind of deal, but the past few years have shown us that their successor can easily be someone who is just not that keen on doing a deal with anyone.

It might often be slow and sclerotic and sometimes unreasonable towards the UK, but in some ways this is a positive. It is unlikely to do anything too wacky or embark on a massive shift on trade policy on a whim, even if it is frustrating for the UK government to deal with.

Second, and it is related to the first, if the UK is seen as being too eager to ignore or even break its other commitments in order to please the US then that makes the UK an unreliable trading partner. Ironically, one of the reasons I always felt that the UK was uncomfortable in the EU was that it was almost unique in its dislike of many of the rules it signed up to but then would attempt to follow them completely. Again, this was frustrating but actually showing that you will comply with the terms of any agreement you’ve made does make it easier for you to convince other countries to sign a trade deal with you. It’s a big world which goes beyond the US and the EU and the UK should be continuing to sign trade deals with as many of them as possible and to promote free trade at the WTO. Being seen as a reliable trading partner will help with this.

Third, appearing to be too keen on getting a trade deal is not a good negotiating strategy. One of the criticisms of the UK’s trade policy after Brexit was that we did seem desperate to get a trade deal with just about anyone. This is an unfair criticism as the fact that we did not get a trade deal with the US last time Trump was in power actually demonstrates – commentators said that we would change our standards even though the government had repeatedly said it wouldn’t – it would have been actually very easy to get a trade deal with the US if our negotiators just went to every round and started it by agreeing to everything the US asked for and abandoned our red lines.

I’m in favour of lifting the ban on products such as chlorinated chicken and hormone treated beef, especially if they helped the UK to strike a trade deal with the US. However, the political economy of trade policy is that negotiations are often treated as a zero sum game where the side which gets the greater market access while protecting more of its own industries is seen as the winner. Furthermore, even though the UK was not going to budge on its red lines, we were often in a comparatively weak negotiating position as it looked as though there could have been a ‘No Deal’ Brexit and so other nations knew that we needed to strike deals with them. If it looks as though the UK is willing to abandon everything just to get a trade deal with the US will weaken our hand going into negotiations. 

Finally, we need to remember that geography still matters. Over two years ago, I wrote a response to Patrick Minford who wrongly claimed that essentially a trade deal with Australia meant that we no longer had to worry about trade with the EU. I in no way want to be a downer when it comes to the FTA with Australia given that I worked on it and I do feel that it was a very significant moment for our country as a newly independent trading nation, Professor Minford ignored the Gravity Model of trade. 

The Gravity Model shows us that in trade – like in physics – size and distance are important. Nations do more trade with other nations and blocs depending on their size and distance. As I mentioned earlier, I do think that a trade deal with the US and a comprehensive FTA with it would be very significant and much more so than the one with Australia. However, this is in part due to the Gravity Model – the US is far richer and closer to the UK than the UK is to Australia. The UK and the EU are both major economies and are very close so we should still prioritise it as a trading partner.

So, there we have it. As discussed above, I will write something later this week setting out the case for a comprehensive FTA with the US so I am not disparaging the idea of one as it would potentially be very significant for the UK. Moreover, I do not think a Trump Presidency means that the UK should therefore seek to rejoin the EU. I’ve written previously on why I think this would be a waste of time at the moment. What is more, it is also a big world out there (as I mentioned above) and having an independent trade policy is a ‘Brexit Benefit’ which the UK should be using to negotiate as many trade deals as possible. Like so many things in public policy, if Brexit is to be made to work in the UK’s interests, then a conservative approach is probably best. ‘Move fast and break things’ might be a helpful approach for startups and even for countries which are really in a bad way such as Argentina (which is why I’m a Milei fan for the most part) but probably isn’t the best thing to do when it comes to international trade.

Thanks as ever for reading!