In the post-Brexit world, a US-UK bilateral free trade agreement has become inevitable. Now, with COVID-19 hitting both economies more than ever, both sides intend to strengthen their respective economies. However, a trade deal might also be a matter of political survival as Prime Minister Boris Johnson and US President Donald Trump have been subjected to heavy criticism over their crisis management during the pandemic.

US-UK Bilateral Trade Deal

The United States and the United Kingdom have initiated talks to conclude a bilateral free trade agreement. Due to the current circumstances — courtesy of the COVID-19 pandemic — the first negotiations over the upcoming two weeks are to be conducted via video conferencing according to an announcement from Robert Lighthizer on behalf of the office of the United States Trade Representative.

The final agreement will strengthen the US economy, Lighthizer said, while British Secretary of State for International Trade Elizabeth Truss stated that both countries would benefit enormously and thus mitigate the economic impact of COVID-19. Both sides described a trade agreement as a “priority” and promised “accelerated negotiations.”

Getting the Job Done Despite the Pandemic

In regular times Boris Johnson would have celebrated the initiation of the talks. Brexiteers amongst his cabinet and arguably himself have long been in favor of implementing a trade agreement with the US. In fact, it was one of their most prominent arguments for leaving the European Union. However, But during a global pandemic, no one feels like celebrating. The United Kingdom has been facing disastrous weeks, economically and at a human level, as it now leads Europe’s total fatalities caused by the virus. Johnson himself has become the subject of intense criticism. Negotiating with President Trump is not adding any popularity points at this stage, either.

Moreover, Johnson is arguably cognizant that the reality could become more different than Truss’s proclaimed “accelerated negotiations.” While the incentive, as well as the political desire to conclude an agreement rather urgently, is undoubtedly present, the conclusion of a comprehensive trade agreement between two developed nations remains a complex undertaking.

Advantage USA

The latter is even more applicable if the trade protagonists are not on the same economic level. With an economic output of more than $ 20 trillion, the US is facing the newly exited Great Britain with an economic output of “only” $3 trillion and is, therefore, negotiating from a position of strength. Besides, Great Britain is only a market of around 66 million people, while the United States is home to 330 million individuals.

For the United Kingdom, the economic benefits of an agreement with the USA appear manageable in absolute terms and in relation to the expected damage from leaving the European Union. Number 10 itself estimated at the beginning of March that, depending on the degree of liberalization of bilateral trade, and an increase in prosperity of between 0.07 % and 0.16 % of the country’s GDP is forecast.

Talking Trade

The trade volume between the United States and the United Kingdom, including the exchange of services, was around $ 260 billion in 2018. Trade within the entire European Union, including the UK, was $ 1.3 trillion at the same time.

While President Trump not only describes Prime Minister Johnson as a “good friend” but has repeatedly promised the UK a quick trade agreement amid the separation from the EU, Trump is also under the microscope. It seems inconceivable that Trump would abandon his “Art of the Deal” approach and not prioritize America’s interests and thus putting his reelection bid even more in jeopardy. Prime Minister Johnson will hardly be able to make concessions that would make the country worse off than it was in EU times.

Thus, while the United States remains Britain’s premier trading partner after the European Union, the White House’s wishes of opening up the UK agriculture market for the US and allowing access to the National Health Service NHS for US pharmaceutical manufacturers remain inconceivable also.

Nevertheless, Johnson may need the agreement more than Trump does, for the mere reason that Trump is being supported by an impervious and – as far as Trump is concerned – an extremely forgiving base. Johnson, on the other hand, while no election is imminent, needs to find a spark in dark times. How much he is willing to sacrifice for this spark remains to be seen, however, the trade agreement could recuperate his tarnished reputation and tip Britain’s economy back into shape in the long-run.

L'articolo The US and UK Are Launching Post-Brexit Trade Negotiations proviene da InsideOver.

Nothing characterised Donald Trump’s presidential campaign more than his penchant for making new deals, after tearing apart or renegotiating existing ones. Be it the nuclear agreement with Iran or brokering better terms of trade with China, no one was safe from verbal wrath. 

Not even the North American Free Trade Agreement, an almost 30-year old pact that ensured free movement of goods between the US, Canada and Mexico. The agreement had led to thousands of job losses, Trump said, as many US companies shifted their production to Mexico where the costs are lower. The same goods were then imported from there, leading to a trade deficit – something the US president hates with all his heart. 

But earlier this week, the three North American countries finally reached another agreement in place of NAFTA, which the US says “will create more balanced, reciprocal trade that high-paying jobs for Americans” when finalised and implemented.

Trump had time and again complained about US companies moving their manufacturing to Mexico due to cheaper cost of production, resulting in American workers losing their jobs, especially in the auto sector where giants like Ford had relocated much of their factories across the border. The new pact addresses this issue by requiring that 40-45% of auto content be made by workers earning at least $16 an hour. 

This would push up the labour costs in Mexico and discourage US firms to shift manufacturing, or at the very least, ensure a higher wage for American workers involved in the sector. According to a report from the Trump administration, the new deal is expected to create over 76,000 auto jobs over the next five years, while the International Trade Commission puts that figure at 28,000 in a period of six years. 

It further requires Mexico to overhaul its labour justice system, by adding legislative actions that the country must take to provide for the effective recognition of collective bargaining rights. Another key feature is the proposed dispute settlement mechanism, which will ensure the enforcement of core labour standards in Mexico.  

The three countries have also committed to reducing trade distortions, for example by not using export subsidies or WTO special agricultural safeguards for products sold to each other’s markets. 

Another bone of contention for the Trump administration was regarding the tech sector, and the new deal explicitly prohibits Canada and Mexico from requiring US companies to host data of their citizens inside their borders. The agreement further lays a roadmap for digital trade, ruling out the application of customs duties on digital products distributed electronically such as music, software etc. 

However, overall the differences are not that many and might not justify the hype afforded to the entire politics leading up to this agreement. The new deal surely does a good job at addressing key points regarding data and digital trade in an ever-advancing technological world, but in the traditional sectors, the changes have been rather marginal. 

As for the benefits it will reap, there are differing views but even the most generous projections do not add too much to the US economy in terms of investments and jobs. However, now that the matter is hopefully settled once and for all, with backing from House Democrats as well, it will go a long way in boosting investor confidence and tackle the uncertainty that had plagued North American trade. 

Similar results to expect with China?

Now that a breakthrough has been made, with core US demands accepted, many might naturally be wondering if the Trump can score a similar “win” against China or other partners as well. But the underlying fundamentals suggest a different picture. 

Unlike the European Union or China, Canada and Mexico didn’t have too much leverage to bargain given their disproportionate dependence on the US for trade. For example, both had their exports to the United States accounting for 70% of the total proceeds while imports also had close to a 50% share. On the other hand, the two neighbours represented a cumulative 27% of the United States’ trade value. 

Meanwhile, the people’s republic has far more diversified trading partners with 20% of its exports directed towards the US and only 8% or so imports originating from the same. Over the years, China has expanded its trade base to virtually every part of the world, thus eliminating too much dependency on any one country. In addition, its rapidly growing economy offered American companies cheap suppliers and thus became a central part of their supply chains. 

As a result, the US  doesn’t enjoy the same bargaining power with China as it did with its neighbours and hence, won’t be able to dictate the terms of any agreement reached between the two countries.

L'articolo USCMA and Trump’s Art of the Deal proviene da InsideOver.