Opinion: Trading in the special relationship

Earlier this month, the first round of talks got underway between UK and US negotiators on the terms of a comprehensive and controversial free trade agreement. Richard Dawson takes a look at what strengthened ties with the world’s largest economy could mean for UK business

It was not that long ago when the focus of political debate in this country was on international trade.

But in the months since our formal exit from the European Union on January 31, the subject has all but disappeared from the public discourse.

Issues around the free exchange of goods, services, people and capital between countries still matter though, and will come into sharper focus as the immediate threat of the public health crisis abates.

What international trade will look like in the post-COVID world will very much be dictated by events.

Will we see a period of deglobalisation and short supply chains as countries look to reduce their exposure to foreign market fluctuations? Or will there be a renewed push by policymakers for more economic liberalisation and integration, such as there was following the Second World War?

If the war of words between Washington and Beijing is anything to go by, the chances of it being the latter seem increasingly slim.

Another reminder of the persisting centrality of international trade comes in the form of news that talks got underway this month between the UK and the US on the subject of a new free trade agreement (FTA).

A UK/US trade deal – though initially mired in the chlorinated chicken controversy – does represent significant opportunities for Britain as we try to rebuild the economy after coronavirus.

America already buys more British exports than any other country in the world (£123 billion in 2018) and the prospect of tariff-free access to its markets is an attractive one for many UK firms.

The UK and the US also share the world’s largest bilateral investment relationship – worth an estimated $1 trillion and supporting the employment of more than 1 million people in each country.

The so-called special relationship that has existed between the Atlantic neighbours for much of the last two centuries has led to massive foreign direct investment and shared enterprise.

The Department for International Trade (DIT) has around 100 negotiators working on the deal. It believes that an FTA between the two countries could increase trade volumes by £15.3 billion in the long run, deliver a £1.8 billion boost to UK workers’ wages and lower the price of key consumer goods imported from the US.

DIT’s outline approach to negotiations will be to knock down barriers to trade for the 30,000 UK SMEs already exporting to the US as well as opening up opportunities for firms in the digital economy, professional services, food and farming, manufactured goods, automotive and the creative industries.

It will not be easy to agree a comprehensive FTA with the US, especially at a time when so much attention is being directed towards the fight against COVID-19. That the UK is simultaneously trying to negotiate its future relationship with the EU is also not going to help.

But it is hoped that where there’s a will, there’s a way and indeed the Confederation of British Industry (CBI) has released a report outlining how a deal could be delivered in the interests of business.

Consulting members on both sides of the Atlantic, the business organisation has put together 26 recommendations for a UK/US trade deal broken into four major areas.

There are some eye-catching recommendations throughout the paper including expanding access for services to allow a greater flow of talent between the two countries and engaging with the US Congress to approve new legislation for skilled British workers to apply for US residency.

A deal could also ease the trade in goods by addressing longstanding tariff issues affecting speciality industries in the UK and make it easier for SMEs to export by establishing a Mutual Recognition Agreement on standards and regulations.

Most recommendations include the need for bilateral working groups and committees to monitor the implementation of any deal and ensure it is having the desired benefits.

On innovation, the CBI believes a UK/US trade deal should also commit to close collaboration on digital services, data transfer, artificial intelligence, pharmaceuticals and life sciences, building on world-leading industries already thriving in both countries.

CBI deputy director-general, Josh Hardie, is hoping for a deal which eases movement for skilled British workers and delivers market access for British firms.

“While the attention of most businesses right now is to get through the COVID-19 crisis, it’s vital that we keep one eye to the future and how we can plan for an economic recovery,” he said.

“The start of these talks offers a sign of hope to businesses. The US and UK already share the world’s largest bilateral investment relationship and an ambitious deal should offer opportunities for all regions and nations of the UK.”

Dr Adam Marshall, director general at the British Chambers of Commerce, added: “While most UK businesses will be focusing on the immediate challenge posed by coronavirus, strong trading arrangements with both the European Union and the US, will support recovery and future growth.

“The Government has set a high ambition for UK-US talks, and it will be particularly important to get the details right over the coming months to ensure that any prospective agreement delivers tangible benefits to businesses and communities across the UK.

“Companies will welcome the focus on helping more UK SMEs grow their trade with partners in the US, and on finding ways to move goods, people and data across borders between the two countries more smoothly.”