December 7, 2020
A lot of things might have changed in 2020, but the United States still remains the world’s foremost economic superpower.
That’s despite the best efforts of the world’s fastest growing superpower, China, which has rebounded strongly from its historic 6.8 per cent contraction in the first quarter of 2020, posting expansions of 3.2 per cent and 4.9 per cent in the subsequent quarters.
China’s economy may actually still grow this year, one of only a handful of countries in the world to do so.
But the US has also staged an equally impressive comeback, following up a record-breaking 34.3 per cent contraction in the second quarter with a staggering 38 per cent expansion in the third quarter.
That is all the more compelling when you factor in how much worse the public health crisis has been in America.
The latest estimates from the International Monetary Fund (IMF) put US GDP at $20.8 billion for 2020, with China in second place on $14.9 billion.
The subject of when the People’s Republic will overtake the US economy is widely disputed, with some commentators arguing that it will never happen and others, like Elon Musk, claiming Chinese GDP will ultimately be two or three times higher than US GDP.
What’s clear is that it’s not going to happen in the near term, which means the UK should be redoubling its efforts in negotiations to secure a comprehensive free trade deal with America in the months ahead.
The foundation for an agreement is strong, given the UK and the US already share the world’s largest bilateral investment relationship. That is to say each country is the other’s number one source of foreign direct investment (FDI).
The relationship is estimated to be worth more than $1 trillion and creates one million jobs in both countries. UK investment also fuels every sector of the US economy and reaches all 50 states.
Sarah Glendinning, North East director at the Confederation of British Industry, says: “The US and UK have some of the world’s most successful trading ties and businesses in both countries look forward to building on that with the new administration.”
According to the latest figures from the Office for National Statistics (ONS), UK businesses exported £112 billion worth of goods and services to the US last year.
That is more than any other country in the world and twice the amount sent to Germany, which is Britain’s second biggest trading partner.
The UK also has a £42 billion trade surplus with the US, compared to a £21 billion trade deficit with Germany.
It should be mentioned that all of these figures are dwarfed by the £274 billion worth of exports sent to the EU as a whole.
But still, there can be no doubting that a trade deal with America presents huge opportunities for UK exporters.
Sarah adds: “The case for a UK/US trade deal is as strong as ever – the world’s largest investment relationship with over a million jobs created in both our countries and like-minded free traders with scope to shape future regulation in new sectors like AI, fintech or life sciences.”
So, what scope is there for a deal?
Well, much like Joe Biden’s definition of America, there are lots of possibilities.
On the one hand, Mr Biden’s desire to repair America’s relationships with its allies and fortify international agreements could mean a return to the kind of multilateralism that governed world affairs before 2016.
This would be good news for the UK, which has traditionally worked very closely with the US on issues like global security and defence.
It would also represent a distinct point of departure from the ‘America First’ foreign policy Donald Trump has ruthlessly pursued during his presidency.
Most notably in its attitude towards China, the Trump administration mobilised tariff regimes for political ends, seeing trade as a zero-sum game through which winning must be achieved at all costs.
A continuation of this approach would be detrimental to a UK/US trade deal, so it’s positive that Mr Biden has moved to distance himself from it.
Boris Johnson was also the first European leader to receive a telephone call from the President-elect, which is thought to be highly symbolic of future intentions.
Moreover, Mr Johnson’s decision to increase UK defence spending by £16.5 billion – the largest rise since the end of the Cold War – will have been music to the ears of the incoming administration.
In light of this, it’s tempting to think that a UK/US trade deal will be an easier sell in the new White House.
But of course, it’s not that simple.
First and foremost, Joe Biden is openly against Brexit and actually used his first phone call with Mr Johnson to underscore the need for the UK to secure a trade deal with the EU.
During the election campaign, Mr Biden also tweeted: “We can’t allow the Good Friday Agreement that brought peace to Northern Ireland to become a casualty of Brexit.
“Any trade deal between the US and UK must be contingent upon respect for the agreement and preventing the return of a hard border. Period.”
The President-elect’s strong feelings on the matter can be attributed to his Irish ancestry – his first state visit will be to the Republic of Ireland upon assuming office.
The second problem is how the UK struggles to be heard in a global context where America’s leaders have to face up to things like the coronavirus pandemic and climate change.
Even just looking at trade, the Biden administration has signalled its intent to revive inter-continental agreements, such as the Trans-Pacific Partnership with Asia and the Trans-Atlantic Partnership with Europe.
The UK looks comparatively small fry when compared to these behemoth trading blocs.
Thirdly, Mr Johnson must work hard to change the perception of him as being Britain’s answer to Donald Trump.
Using xenophobic rhetoric and playing up to populist narratives might have worked well for the Prime Minister while a xenophobic populist was in the White House, but it’s a strategy that will be out of date come January when the new administration takes charge.
On the whole, there is reason to be cautiously optimistic about the prospect of a UK/US trade deal under President Biden.
Relations between the two countries are not perfect by any stretch of the imagination but fundamentally, if the US is looking to rebuild its international reputation and reach out to the rest
of the world, the UK can be a worthwhile partner. But to fully take advantage of any new era of international co-operation, the UK must start as it means to go on and secure a good Brexit deal.
Failure to do so now risks alienating Britain not only from its European neighbours but also its Atlantic ones who are about to be under new management.
As the new year approaches, more than usual it will bring the chance for a fresh start.
But 2021 will also be racked with many of the challenges that have dogged the world this year, making the need for American leadership all the more pressing.
In Joe Biden, the world will at least have a leader that is willing to engage with those challenges, which is good news not just for UK trade, but for all aspects of life.
Sarah adds: “It’s early days but a Biden presidency could open up possibilities for UK business across a host of things including climate change, the World Trade Organisation and a reinvigorated G7.
“British business looks forward to working with the US to capitalise on that.”
The UK’s largest trading partners (£ billions)
1. United States: Imports £70.4 – Exports £112.2
2. Germany: Imports £78.1 – Exports £56.8
3. Netherlands: Imports £46.9 – Exports £39
4. France: Imports £40.8 – Exports £40.4
5. China: Imports £45.2 – Exports £22.3
6. Ireland: Imports £21.8 – Exports £34
7. Spain: Imports £31.3 – Exports £16.1
8. Belgium: Imports £28.2 – Exports £18.7
9. Italy: Imports £24 – Exports £18.9
10. Switzerland: Imports £11.7 – Exports £19
UK total trade (2019)
Total imports – £718.3 billion
Total exports – £689 billion
Goods – £873.7 billion
Services – £533.6 billion
Total trade with EU – £659.5 billion
Non-EU – £683.3 billion
Trade as a percentage of GDP – 63.5 per cent
Trade deficit as a percentage of GDP – 1.3 per cent
Exports as a percentage of GDP – 31.1 per cent
Exports as a percentage of GDP – 31.1 per cent
Source: Department for International Trade – UK Trade in Numbers (February 2020)