The US can't replace the EU as our top trading partner - for good reason.
As Labour’s spokesperson on the controversial EU-US “TTIP” trade talks in the European Parliament, I gained a fair bit of insight into what it’s like negotiating with the US.
It’s why have always doubted that a post-Brexit Britain would be capable of standing its ground in the face of US trade negotiators. This week has shown what folly leaving the customs union would be.
For many of the hard Brexiteers and multinationals on both sides of the pond, the prospect of a UK-US trade deal has been held up as the real fruit of an independent UK trade policy. But this week that bubble has been burst, as the UK diplomatic service has come under sustained attack and we have lost an experienced ambassador to the vanity of Donald Trump.
Playing the game
Even for the EU’s wily, experienced trade negotiators and in the warm transatlantic winds under the Obama administration, it was a game of political chess with powerful vested interests vying against each other for advantage: effectively a battle between two global standard-setting models.
For those advocating a comprehensive EU-US trade deal, tariff reduction was never the main show. For its critics and its advocates, this was an exercise in regulatory convergence and standards through a trade deal rather than democratic dialogue.
Set that aside, and even the premise that we could replace the EU with the US as our top trading partner after Brexit – and do so at our advantage – simply does not hold water. Few have considered what the impact of a shift to the West towards a stronger transatlantic alliance and away from the EU could mean for our economic structure.
European countries are our top customers and our top suppliers, and there is a fundamental reason for that, which predates the European Union: geography.
Facts on the ground
In 1950, according to research from the House of Commons’ library, trade with Germany, the Netherlands and Sweden taken together had already exceeded that with the US. In 1970 – three years before we joined the EU – our total export to our top six customers on the continent was double that to the US. In fact, since 1945 the US has consistently accounted about 10 to 15% of our trade. When it comes to trade, distance means cost.
The UK has run an ever-growing trade deficit on goods with the rest of the world since the early 1980s. But at the same time, our trade in services has boomed – recording larger surpluses year on year. Services are the effectively the backbone of the British economy, with such exports accounting to about 15% of our GDP. And who do we sell these to? Mostly to the EU, resulting in a net surplus of about £30bn a year.
The situation with the US could not be more of a contrast. We are actually a net buyer of services from the US, with a deficit of £12bn last year. There’s a simple explanation as to why we are doing so well on the European market, and so poorly on the US one: the EU has a single market, meaning the rules are the same in all countries, but the US doesn’t.
Any exporter of services to the US faces big hurdles when trying to operate across state lines, and the US has always been opposed to opening the black box of sub-federal regulations in trade deals. Rather than the free trade paradise that many assume, UK companies regularly raise the obstacles that they face entering the US market with me.
US trade policy is effectively “do as I say and not as I do”. It ever was thus, but even more so under Trump: liberalising everything beyond their shores, scrapping all multilateral rules and regulations, and ignoring the impact on people and planet. Donald Trump made no secret when in London for his recent state visit he said “everything is on the table” in a future UK-US deal – including food safety standards and the NHS.
Tips from TTIP
The TTIP negotiations between the EU and the US failed not because of a lack of commitment to free trade from the European Commission – anyone who has been following trade negotiations in Brussels over the past decade can testify to the eagerness of the EU to do trade deals.
TTIP failed because citizens across Europe mobilised against the US agenda to privatise our public services and repeal the EU bans on chlorine chicken and animal testing for cosmetics. It also failed because the US was never willing to give any meaningful counterpart to EU concessions, for instance opening up their procurement markets.
The UK alone will not fare better than the EU in bilateral negotiations with the US, and suggesting otherwise is plain fantasy. The EU has been doing trade deals for 40 years – the UK hasn’t. The EU has a consumer market of 500 million people – the UK doesn’t. The EU has a Parliament that has real leverage in international negotiations, to ensure that people’s choices are respected in trade deals – the UK hasn’t.
Trump has brought back to life archaic techniques to the trade world: bullying and trade wars. It seems that every day the current US administration is threatening new retaliatory measures against its closest partners, from Mexico to the EU, and escalating economic conflict with his nemesis in Beijing.
Meanwhile, the EU remains a beacon of soft power, the standard bearer for the rule-based international trading system. It does not slap tariffs on its trading partners. A far healthier partner for the UK for a long-term relationship.
Jude Kirton-Darling is a Labour Member of the European Parliament for the North East of England.
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