CEO, Coriolis Technologies
This first week of June will be dominated by the State Visit of President Trump to the UK. The timing could not be worse. The President will be bringing his zero-sum negotiating style to a government in the UK that exists in name only and has no vision either or what its relations will be with the US in the medium term nor, indeed, of what its relations will be with itself immediately after the visit.
Yet this is not a President coming to show the depth of the Special Relationship come what may. This is a President who has uniquely used his position to begin the process of redefining its relationships with the rest of the world on its terms. Unlike the UK, and like it or not, President Trump has an unambiguously clear view of what he wants: to Make America Great Again. Nothing will stand in his way – least of all the sensitivities of UK politics at the moment.
US trade negotiators, and Trump in particular, have already said how the UK should take the opportunity of Brexit to strike trade deals with the US. They have also made it clear that the UK will have to accept both US standards in agriculture and food safety and the opening up of UK public services to US investment. Other priorities of the US include fair market access for its manufacturers, and the maintenance of a favourable value for the dollar against sterling. There will be no special arrangements for the UK.
The UK will be the weaker partner in any negotiations that it undertakes at the moment. Outside of the EU it accounts for just 2.5% of world trade; it has a mild goods deficit with the US but its exports of cars, pharmaceuticals and aerospace have increased over the past five years respectively by 12%, 4% and 1.5%. Given the sensitivity of the US to these sectors, and automotives in particular, the UK could well fall victim to tariffs imposed by the US whether or not it is part of the EU on rules of origin grounds since it imports roughly 48% of the value of what it exports in the automotive sector.
The US is set on influencing the policies of its allies. For example, while the UK, France and Germany have tried to set up a special purpose vehicle to allow their companies to trade with Iran, companies and finance houses themselves are reluctant to engage with it if it means running the risk of violating US sanctions; the same is happening with Huawei and 5G.
If ever there was any doubt that trade has been weaponised, the last week should have erased it. The US imposed tariffs on all Mexican imports from June 10th to address the “extraordinary threat to the national security and economy of the United States” caused by the influx of migrants. China accused the US of “economic terrorism” and “coercion”. Mr. Mohammed Zarif, Iran’s foreign minister, said clearly, “it did not distinguish between an economic war and a military war” in response to President Trump’s executive order at the beginning of May to tighten tariffs on Iranian aluminium and steel after Mike Pompeo offered to open talks over the weekend.
Of course, the UK will not fall victim to this type of language because it does not represent a national security threat to the US – its trade is too small and in deficit anyway. It contributes at least the minimum threshold of 2% of GDP to NATO and therefore is not on the naughty step with that one either. The problem is that it is an open economy and highly dependent on imports. Any trade deal will reflect this, rather than anything else: the UK is a price taker, not a deal maker.
The visit of President Trump should be used as a moment of national reflection: do we want to play the game of weaponizing trade or not. If the answer is the latter, then we need to be very careful what we wish for and look before we leap. This next week may well turn out to be more important than we think.
Become a MultiLateral Thinker
For £50 you can become a MultiLateral Thinker. This gives you:
- Pre-publication access to all our geo economic and geopolitical risk reports (minimum of four a year)
- Access to the Coriolis Technologies MultiLateral Thinking blog as a contributor (note, blogs will be reviewed and approved prior to submission)
- Reduced rate attendance at our events (first is scheduled for Autumn 2019 with a specific focus on Security Issues and Trade)
- Access to our working paper series and potential to contribute working papers for peer review.