17 September 2019

Beyond Brexit – what a US-UK trade deal will really look like

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All through the excruciating, endless Brexit debate, I have been struck by the myopia of the analysis. Like the biggest bore at the party, the Brexit commentariat focus on the interminable minutia of the argument: the Irish backstop, the size of the divorce bill, John Bercow’s windy orations. All of this entirely misses the Brexit forest for the trees.

Getting beyond Brexit—where the whole of the UK has been intellectually mired due to the the hapless, highly unimaginative administration of Theresa May—instead requires looking at what comes next, in geostrategic as well as macro-economic terms.

In other words, can the UK can use its newfound freedom to craft trade deals with the parts of the world that are growing, rather than obsessing about the ultimate accord with the one continent that is not? If this can be done in the near term (say three to five years) than all is well. If not, then Brexit will most likely be a disaster. It is this that we need to focus on, rather than the mind-numbing parochial debates that have bogged the country down.

The European Union is a busted flush

From a British point of view, a fusing of geopolitics and macro-economics looks like this. First, the European project is in a state of decline. Export-driven Germany is hurtling toward recession and chaotic, wobbly Italy has a smaller economy now than in 2008, before the recession. Basic 2% growth of GDP per annum – about what is needed to be healthy in an advanced industrial economy – presently seems far beyond the poor powers of Berlin, Rome and even Paris to achieve. Sticking with the sclerotic continent is a ticket to nothing but decline.

Fortunately, in the Anglosphere—the former major English-speaking colonies and dominions of the British empire—the UK has a genuine alternative to going down with the sinking European ship, putative trading partners growing at a far healthier clip.

For in this new era, it is time for London to think anew. Australia, New Zealand, Canada, the US and India are not relics of Britain’s Imperial past. They are a loose but durable alliance system that can be the key to the UK’s geostrategic and economic future.

In 2018, Australia and the US grew at a very healthy 2.9%, with New Zealand growing at 2.8%. India, the star emerging market performer, managed a robust 6.8%, powering Prime Minister Narendra Modi to his landslide re-election.

As in snooker, the order the balls are potted in terms of trade deals matters enormously. Australian Prime Minister Scott Morrison is making it clear that he thinks a free trade deal can be inked in under a year. New Zealand and Canada ought to be next.

The crux of the matter will be if the UK can manage free trade deals with India and – the key player in all this – America, already Britain’s key intelligence-sharing, military and FDI partner. So what would this pivotal US-UK trade deal look like?

The contours of the accord  

Fortunately for Britain, in political terms, President Donald Trump is far and away the most Anglophile American leader in recent memory–compare his enthusiastic ‘first in line’ comments regarding a deal to the dismissive “back of the queue” position of Barack Obama.

At the Congressional level, things also look good, if not without some difficulties. Already, 45 Republican Senators have written to the White House making it clear they are on board for a quick and comprehensive accord. Critically, if the UK can persuade at least some of the the powerful Irish caucus in the Democratic Party that the Good Friday agreement will be upheld, all will be smooth sailing.

This enthusiasm is based on American interests, rather than a shared nostalgia for Winston Churchill. Despite Remainers continually talking the UK down, Britain is the world’s fifth largest economy, the number one source and destination of Foreign Direct Investment with America, and Washington’s number one trading partner in terms of services, increasingly critical in the globalised world. Doing a deal with a country already so enmeshed with America’s economy makes eminent sense from Washington’s point of view.

In February 2019, US Trade Representative Robert Lighthizer got into the weeds, laying out the US’s initial negotiating position for any upcoming US-UK trade talks, an optimal wish list of what America might want from them. First, the US wants the UK to shed EU restrictions on US food and agricultural products, including over highly controversial chlorine-washed chicken and hormone-treated beef.

For decades, the EU has made this a food safety issue, despite a lack of scientific evidence that these processes in any way harm human beings. For just as long, the US has railed at these objections as merely the latest excuses for Europe (and the UK) to protect their inefficient and highly-subsidised agricultural sector.

Beyond the hysteria, the simple reality is that many British agricultural products are already chlorine-washed, such as lettuce. And hormone-treated beef, designed to be disease-resistant, may well be safer than the organic beef now on sale in London’s bistros. A compromise, involving some sort of labelling, could be the answer to this emotive issue. In such a case, people can exercise their choice by paying more for agricultural produce if that is their desire, while the market is opened.

Second, and equally controversially, the US wants to look at NHS drug pricing, long a source of friction. Hysterics say this is merely the first step on the road to the US subjugating the NHS, making the cherished institution a vassal of private US pharmaceutical companies.

Having lived in the UK for a number of years, I am aware (and somewhat amused) at how this creaky, inefficient bureaucratic behemoth has always inspired so much affection from the British people, but there is absolutely no doubt that it does.

Yet, the NHS is not what it is casually assumed to be. Presently, the private sector already plays a major role in the NHS. In 2017-2018, 7.3% of all NHS funding was outsourced to private care-givers. After 70 years ensconced at the centre of British social life, it is impossible to believe that the funding model of the NHS—economically problematic though it is—will change, or that any British politician would seriously consider this, given its popularity.

The US may gain quicker access in the UK for drugs its pharmaceutical companies develop, and American firms may play a marginally greater role in the NHS, but the heavens are unlikely to fall because of these (rather minimal) changes.

Third, and less contentiously, the Americans want to push a more liberal standard (as opposed to EU practice) on privacy issues and data flows, and end discussion of extra digital taxes, a weapon squarely pointed at the US-dominated tech industry.

Fourth, the US may stipulate —as it did in the recently re-negotiated successor to NAFTA, the USMCA — that any US-UK agreement can be terminated if the partners instead strike a free trade deal with a non-market partner; in other words, with China.

For the US, the geopolitical circling of the wagons around its primary goods trading partners (Mexico is first, Canada second, and the UK fifth) is fast becoming a major geo-economic preoccupation. Following Prime Minister May’s typically wrong-headed flirtations with Huawei, giving it partial access to the UK’s 5G network, Boris Johnson has already made a course-correction on this point. Because of this, any such terms ought to be easily reached.

So by looking into the weeds, it is clear that, even going by USTR Lighthizer’s initial wish-list (which will never come to pass in its entirety) the obstacles to a US-UK trade deal are not beyond the wit of man to overcome.

Conclusion: An epoch-defining choice

Lazy (and often left-wing) Brexit commentators ritually charge that the UK is about to sell itself into slavery under the hard fist of American dominance. However, even given this defeatist, utterly wrongheaded characterisation, the choice for Britain is not between servitude to Washington or a happy freedom; instead, it is between playing second-fiddle to America or to a very bossy, intrusive, and utterly failing Europe. So even by this gross geostrategic mischaracterisation, the choice ought to be an easy one.  

But let us think for real and anew. For the real yardstick to measure Brexit has absolutely nothing to do with what is presently dominating the headlines. Rather, if in three to five years the UK has inked free trade deals with the major Anglosphere players it was worth it; if not, Brexit was a mistake. It is as simple as that in economic terms.

Geostrategically, it is also clear. A key factor almost never brought up is the very different trading cultures of the EU and the Anglosphere, as illustrated by the NAFTA agreement. The EU requires, indeed demands, a vast pooling of political sovereignty to make the system work. The NAFTA accord shies away from this, safeguarding far more sovereignty and national political room for manoeuvre. Even the most causal advocate of political freedom has an easy choice to make here.

But in the end, it is not a matter of the UK exchanging vassalage from Brussels to Washington. It is a matter of serving as a free and independent partner with the most powerful country in the world, as opposed to shackling what’s left of British sovereignty to Europe, as it continues sinking into second-rate status. And that choice ought to be crystal clear.

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Dr. John C. Hulsman is Chairman of the global political risk consultancy John C. Hulsman Enterprises, and author of 'To Dare More Boldly: The Audacious Story of Political Risk'