Since Donald Trump’s surprise victory in 2016’s US Presidential election, foreign trade has been at the forefront of American policy. The dissolution of NAFTA and retooling of existing agreements with China, the EU and the UK have topped President Trump’s first-term agenda. However, despite extensive negotiations, a comprehensive Trump trade deal with the UK has yet to materialise.
The fourth quarter of 2020 will be a pivotal time for UK-US trade. The much-anticipated US presidential election takes place 3rd November 2020, and 31st December 2020 marks the end of the Brexit transition period. Both events are highly likely to shape bilateral trade between the US and UK for years to come. Although both sides appear anxious to preserve US$1 trillion in foreign direct investment (FDI), 2.7 million jobs, and $247 billion (per 2019 figures) in two-way commerce, a formal Trump-UK trade agreement is unlikely by 1st January 2021.
One of the key drivers of 2016’s Brexit Referendum was the ability for the UK to craft trade deals free of European Union (EU) intervention. Over the course of the transition period, a new “Global Britain” has emerged. Negotiations with the World Trade Organisation (WTO) regarding a new schedule of commitments around goods, services and agriculture are under way. In addition, the UK crafted “continuity deals” with nearly 50 countries and territories, accounting for 8% of aggregate foreign trade as of June 2020.
Despite efforts from both sides, an official UK-US international trade pact is not yet in place. Although a long-term bargaining agreement with the US will support the UK’s post-Brexit economic success, circumstances may delay negotiations by months or years. In the meantime, UK leadership may be inclined to direct efforts toward dealings with the EU.
In the run-up to the 2016 presidential election, then- candidate Donald Trump campaigned on reforming US foreign trade. That meant preferential status for Britain and that the “UK will always be at the front of the line” when it comes to negotiating free trade deals.
However, proposed trade negotiations haven’t developed as planned. Repeated Brexit delays and tensions resulting from the Boeing/Airbus standoff have undermined progress. In response to the Airbus issue, the US placed tariffs on a collection of UK exports, headlined by scotch whiskey. According to UK Trade Secretary Liz Truss, the levies on scotch were “unacceptable.” Even though the tariffs paled in comparison to those placed on many Chinese exports, the Boeing/Airbus situation significantly set back British-American trade.
According to US Trade Representative Ambassador Robert Lighthizer, a sweeping UK-US trade deal is “almost impossible” by Election Day. When considering the risk of Trump not winning a second-term and the onset of the COVID-19 pandemic, it stands to reason that the process of ratifying an agreement will drag well into 2021, or beyond.
Regardless of whether or not a deal comes to pass, volatility in the USD and GBP is sure to ensue throughout the negotiation process. To capitalise on the exchange rate volatility, you can open and fund a trading account at Forex.com in as little as five minutes. With Forex.com’s premier brokerage service suite, you are always in position to engage the markets from a position of strength.
Although Lighthizer is optimistic that a UK-US trade deal will eventually get done, he views UK-EU talks as being key to the US position, noting that “what [the UK] give[s] Europe will affect what we get.” While Lighthizer’s comments were made somewhat tongue-and-cheek, they do suggest that British-European commerce will be a key component of any Trump trade deal with the UK.
One of the key stumbling blocks of the ongoing dialogue has been the “chlorinated chicken” debate. Since 1997, the EU has banned the washing of chicken products in chlorine, a common practice in the US poultry industry.
Accordingly, the UK government has denied that it would accept lower food standards in the post-Brexit era, jeopardising the entirety of US agricultural exports to the region. Britain’s Environmental Secretary Michael Gove has stated that chlorinated chicken will be a “red line” in forthcoming negotiations with the Trump administration. As trade talks continue post-Brexit, Britain’s commitments to EU agricultural standards will be an integral part of any Trump-UK trade agreement.
From a financial standpoint, Britain is motivated to promote a positive commercial relationship with the EU. As of 2020, UK-EU trade measures more than twice the size of UK-US trade. Certainly, Britain’s commercial affiliations with the EU will be important to preserve.
There are two questions at the core of every trade deal: Who benefits? And by how much? For the UK, a comprehensive agreement with the US may not bring any extraordinary value. Initially, the Department for International Trade (DIT) estimated that a Trump trade deal with the UK would bring in £3.4 billion across the first 15 years. These figures were largely retracted, and the British government admitted that the economy may grow by only 0.16% through 2035 under a comprehensive US-UK trade deal.
In addition to moderate economic growth, the social impact of a UK-US trade deal may prove negative. According to a Newsweek poll conducted by Redfield & Wilton Strategies, a majority of UK adults viewed negotiations with the Trump administration pessimistically. The online poll targeted 1500 Britons over the age of 18 living throughout the UK. Results showed that 53% believed the Trump administration would not “treat the UK fairly and respectfully in trade negotiations.” Conversely, only 27% thought that dealings would be on the up-and-up. While the merits of such polls are debatable, Redfield & Wilton’s data suggests that there may be a general disdain toward President Trump’s international trade tactics.
As the post-Brexit era approaches, global markets aren’t prepared for the escalation of UK-US trade tensions. The COVID-19 pandemic and the impact of the US-China trade war on the financial markets have been a significant global economic setback. At this point, the establishment of a strong Britain-America partnership is integral to future prosperity.
Given the complexities of international commerce, accurately predicting the future of geopolitics can be a daunting task. Rest assured that no matter how UK-US trade turns out, there are potential benefits from trading the British pound, US dollar, and other UK/US assets. For more information on how you can get in on the action, one of our market professionals today.