A free trade agreement with the US was one of the big carrots dangled in front of UK voters by Brexiteers. There was talk it might boost UK-US trade by £40 billion a year.
Back in 2019, then British prime minister Boris Johnson pegged it as a tonic to ease the pain of breaking with Europe, the UK’s largest trade partner.
At the time US president Donald Trump whet appetites by promising London a “massive” trade deal to support Brexit. Anything that helped fracture the EU was, from Trump’s perspective, to be supported.
But the prospect of deal seemed to founder on several issues including the UK’s EU divorce terms which kept it “dynamically aligned” with Brussels, a stumbling block for Washington. The UK’s digital services tax imposed on US tech giants was also an issue.
Talks stalled and then dropped off the agenda entirely. The deal never materialised. It still hasn’t. What the UK government brokered with the Trump administration last week was not a free trade agreement (which is typically broad based and long term) or even trade deal in the classic sense but the framework of a deal.
At best, a carve out from Trump’s Liberation Day tariffs.
It covers just 30 per cent of the UK exports to the US and while leaving most of the trade, even sensitive car exports, still behind Trump’s universal 10 per cent tariff wall.
The objective had been to remove these tariffs but that hasn’t been achieved, leaving UK exporters still worse off than they were before Christmas.
With both sides desparate for a good news story, London and Washington agreed to park negotiations and rush through a stop-gap deal based on specific sectoral tariffs, primarily cars and steel.
All of which make claims of an historic deal touted by both leaders a nonsense and the linking of it to VE Day and to Britain and America’s historic wartime alliance an absurdity.
With the British economy struggling to grow, US tariffs had upped the ante considerably.
Jaguar Land Rover, one of Britain’s biggest producers, had paused shipments to the US while the UK government has been forced to seize control of British Steel to keep it operating.
Securing a deal that reduced US tariffs on British auto imports to 10 per cent (down from 27.5 per cent) was a victory of sorts.
Business secretary Jonathan Reynolds said the UK was days away from losing thousands of jobs at carmakers facing US tariffs.
For its part, the US can claim better access to the UK market for agri products (something that could displace Irish beef exports in its biggest market as well as aggravating the North’s in-out trading position with the EU) while behind the scenes assurances about British steel and its possible nationalisation with its Chinese owner losing out looks like another win for Washington.
But for the UK and prime minister Keir Starmer all roads lead back to Brussels and closer trading ties with Europe, a toxic subject for many Britons but an economic necessity for a country looking for ways to grow.
According to the Office for National Statistics (ONS), UK exports to the EU have fallen by approximately 15 per cent since Brexit, while imports from the EU are down 18 per cent, a decline attributed to the additional red tape that now applies.
The main block on a wider UK-US deal almost certainly relates to the UK needing to maintain a position from which to negotiate a better trade deal with Brussels.
Starmer‘s deal - very obviously - left space for the UK to pursue a veterinary agreement with the EU in order to lower post-Brexit red tape on food, farm and fish exports.
Ahead of a EU-UK summit next week, the UK prime minister told The Guardian that he had “ambitious” plans to secure a closer trading partnership with Brussels and would align with the EU on food standards while enhancing co-operation in security and other areas.
Convincing the Brexit-weary population of the benefits of closer ties with the EU while checking a surge in support for Reform UK will require some delicate politicking.
The priority of a better UK-EU trade deal to help the UK’s struggling economy was underlined by Bank of England chief Andrew Bailey who, in responding to news of the UK-US deal, said London must “do everything” to rebuild trade with EU.
If the US-UK deal is a template of what’s to come, it looks like US tariffs are here to stay.
According to the Department of Finance’s annual progress report, published last week, if the EU agrees a similar deal with Washington, keeping the 10 per cent US tariff baseline in place, we’ll have a modest hit to growth and a slower rate of job creation.
Of course, the elephant in the room is big pharma, the State‘s biggest export to the US, which remains in tariff limbo and which wasn’t included in the department’s various tariff scenarios.
The department’s report is littered with caveats and cautions about the possibility of unforeseen spillovers or flashpoints from such a major disuption to global trade.
Anyone who claims to know how this will play out is fooling themselves.
