20 June 2019

Let’s make the special relationship great again


“The United States is our greatest ally. It is the foundation of the Alliance which has preserved our security and peace for more than a generation”. So said Margaret Thatcher in the House of Commons in 1986. It’s a sentence which sums up nicely the special relationship between the UK and the US, which in the post war era has been key to creating and maintaining the rules-based international system and its global institutions, such as the UN, the IMF and World Bank, the WTO, and the NATO alliance.

The era of Margaret Thatcher and Ronald Reagan was arguably the high point of the special relationship, and when the alliance functioned most closely and effectively, especially in keeping the flame of liberty and democracy alight in the fight against communism. That’s why it is fitting that, here at the Centre for Policy Studies, we have chosen to focus this year’s Margaret Thatcher conference on Britain and America. Thatcher and Reagan are both sadly long gone and we no longer live in the world of the 1980s with the common foe of the Soviet Union. However, there is still much good that the alliance can do, and new areas in which it can be strengthened.

The special relationship has never been only about defence or diplomacy, crucial though they both are. The US and UK both share a common belief in the key importance of economic freedom and trade to the prosperity of a nation and to the flourishing of individuals. After all it was Thatcher and Reagan who spearheaded the move in the 80s to free up markets and narrow the scope of government interference, part of which was an effort to promote more international trade.

Britain and America already have a very strong economic and trading relationship. The US is the single largest bilateral trading partner for the UK, with total trade worth £182bn in 2017. The US is by far the biggest export destination for UK goods and services, with 18.4 per cent, or £113.8bn of all UK exports ending up there. Of course, the real benefit of exporting is not the money it brings in but the goods it allows the consumers in a country to purchase and consume, and the UK uses its exports to the US to purchase almost £70bn of US goods and services, making the UK one of the US’s most important export markets.

It’s not just buying and selling goods and services off each other which ties the UK and US together economically. The US is the number one destination for British FDI, and it is also the nation that invests most of its own FDI in Britain, helping to create and build the technologies and companies that keep the economy dynamic, raise productivity and provide well paid jobs.

All this has been achieved despite Britain being part of the EU, and thus not having control over trade policy or full control over the rules and regulation that govern its economy. In light of Brexit and the potential for the UK to take back full control of these areas, there is an opportunity for the UK and US to forge an even closer economic and trading relationship.

Despite Donald Trump’s scepticism of the US’s trading relationship with China or Germany, he seems enthusiastic to reach some form of deal with the UK. Looking beyond the President, there can’t be many countries, apart from their immediate neighbours Canada and Mexico, who Americans, politicians and public alike, would be keener to have a trade deal with than the UK. Polling from December last year, found that 63 per cent of Americans were in favour of a UK-US trade deal.

If the UK can reach a deal which manages to open up at least some of the multi-trillion-dollar US services sectors then the benefit to the UK could be enormous. Of course, let us be clear so as to reassure President Trump — this would not just be a one-way trade. Both countries would sell more to each other, and both would gain the benefit of having easier and cheaper access to those goods or services that the other held a competitive advantage in. The US would get greater access to the UK markets, in particular a consumer market which has shown itself robust in spite of the travails of Brexit and all the resulting economic uncertainty. Lower tariffs and easier access to the UK markets could be a substantial boon for US goods and services exporters.

Defence is another area where strong ties between the UK and US can be deepened. As new threats emerge, NATO will have to adapt and change to ensure it continues to deliver the security and stability it has guaranteed for the last 70 years. For it to do this, it needs sufficient resources. This means all member nations meeting their 2 per cent target for defence spending. Britain and the US are among the few countries that have consistently done so, they must do more to work together to ensure other members contribute their fair share, and to reform the organisation so that it is fit for purpose and can deal with the new challenges of the 21st century not just those it successfully dealt with in the 20th.

For most of the post war period the special relationship between the UK and the US was the key western alliance, key to the formation of the international rules-based order and standing up against communism. With China and India rising as economic superpowers, Russia reasserting its power, and international terrorism threatening like never before, we live in a very different world today. Nevertheless, there is no reason that the partnership between our two great nations cannot continue to respond to whatever new circumstances or threats arise, and deliver stability and prosperity not only for ourselves but for much of the rest of the world as well.

That’s why conversations of the sort we hope to encourage at the CPS Margaret Thatcher Conference, about how both the US and the UK think their alliance should evolve in the coming decades, are so important.

Jethro Elsden is a Data Analyst at the Centre for Policy Studies.