You’re not special anymore: three reasons why the UK’s trade negotiating position must change

Dr. Rebecca Harding

Now is the time for the UK to come to terms with the fact that the ‘Special Relationship’ is over. While it is certain that there will still be military cooperation through NATO and Five Eyes, President-elect Biden will not make a trade deal with the UK his first priority, even if the UK’s negotiating tactics so far would like to assume that he would. Let’s be clear about one thing: the foreign policy rhetoric will soften as Biden begins to ‘restore US leadership. But the US is itself desperatately in need of leadership, and unity. Foreign policy will not be his top priority.

It is hard to under-state how important this rhetorical shift is. Trade was figuratively weaponised during the Trump era simply because strategic ‘competitors’ in an economic sense became ‘enemies’ who took jobs away, stole American technology, threatened security interests, and most recently of course, gave the world the coronavirus. The fact of strategic competition remains, but the belligerent language will be dialed down under a less populist agenda. The sigh of relief around the world at the prospect of a multilateralist United States is palpable. Without altering foreign policy at all, the US will have regained its role as the global policeman simply by using less aggressive rhetoric.

This puts the UK in a particularly difficult place for three reasons. The first, and most immediate of these, of course, is the imminent end to the transition agreement with the EU on the 31st December 2020. If there is no deal, then the UK leaves the EU on WTO terms meaning that it loses it access to trade on preferential terms with any nation or bloc unless it has a trade agreement. Positively, for 50 countries, accounting for around 8% of our trade, agreements will ‘roll over’ – in other words, for countries like South Korea and Switzerland the same trade terms will apply after the UK ceases to be a member of the EU. So far, so good. But even if you add in the agreement with Japan, covering a further 2% of UK trade, these agreements are still slightly less than the 11% they would be were we members of the EU.

The much-heralded trade deal with the US would cover an additional 15% of our goods trade, taking the total to 25%. But this looks difficult if the Internal Market Bill, currently on its passage through the House of Lords, is passed into law. Joe Biden and the Democrats have stated their position clearly – quite apart from the fact that he Bill breaks international law, anything that damages the Good Friday Agreement will prevent a trade deal with the UK. But without a deal with the US, with only 10% of our trade on free trade terms, and with the prospect of no deal with the EU, there is little for the UK to boast about in this new and independent world.

Second, trade policy has become binary over the past few years: ‘I export more, you export less, I win, you lose.’ This is unlikely to continue and in any case, in reality, imports are just as important because they enable exports. Here, the UK is relatively weak in terms of its negotiating position. In goods terms, we imported around $729bn in 2019 and exported $491bn. But some 63% of the UK’s exports are accounted for by its top ten export partners. Seven of these are EU member states and account, by themselves, for nearly 40% of total goods exports. 49% of our total trade, goods and services, is with the EU – a reality that has been staring the UK trade negotiators in the face since the moment that Article 50 was triggered. Outside of the EU and in the absence of a deal with the US, the UK’s import costs and complexity will increase at a time when a more, dare I say it, ‘global’ approach to trade is re-emerging. At present independent forecasts are suggesting GDP will shrink by over 10% in 2020 and only grow back by 5.6% in 2021 – a deal seems more imperative than ever.

Finally, the foreign policy priorities of the new adminstration, once they are articulated carefully, will be framed in environmental and multilateral terms. President Elect Biden is likely to reaffirm US commitment to NATO, rejoin the Iranian nuclear deal and the Paris climate accord, and align allies against the rise of Chinese technological and economic power. He is likely to re-engage with the WTO and its reform and sees ‘Economic Security as National Security’ as highlighted in his campaign.

Against this backdrop, the priority will be undoubtedly to restore trade and strategic relationships with the EU. There are many things that are positive about this, including a focus through the tariff regime on sustainability. Mr. Biden is an Atlanticist – he will not want to leave relations with the EU in the state they are in at the moment for any longer than is necessary, not least because it will help in broader foreign policy objectives. The UK, as a non-EU ally, will be, in Barack Obama’s immortal words, ‘at the back of the queue’ with relatively little to pull the US closer simply because it is not able to influence EU policy any more.

At the weekend, Ursula van der Leyen and Boris Johnson met to ‘take stock’ of current negotations. The somewhat muted outcome of the conversation was that they would ‘double down’ in the talks that start again this week.

So now is absolutely the moment when the Johnson government should be thinking clearly about its strategic and foreign policy objectives. There is little doubt that these should be focused around trade – one legacy of the populism of the Brexit and Trump era is that trade has become nationally strategic. It is a mechanism for exerting influence in a world where the nature of conflict is geoeconomic and not just geopoltical or military. A shift in rhetoric back towards multilateralism means that the UK can no longer be isolationist simply because it  is not special any more.  


MultiLateral Monitor Q3 2021

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