Wednesday, July 26, 2017

The U.K. Should Be Wary Of A Trump Trade Deal

Chlorinated chicken might be all that Britons would get out of it.

By Leonid Bershidsky
The Bloomberg View
July 26, 2017

President Donald Trump tweeted on Tuesday that he was working on a potentially "very big & exciting" trade deal with the U.K. that would shame the "very protectionist" European Union. He's right that such a deal could be politically advantageous for both governments. For U.K. consumers, though, it might deliver little more than chlorinated chicken.

U.K. International Trade Secretary Liam Fox, whose talks with U.S. trade officials prompted Trump's tweet, estimates that a deal could boost trade between the two countries by 40 billion pounds ($52.2 billion) a year by 2030. That's ambitious but not outlandish: Back in 2013, when the U.S. was negotiating the ill-starred Transatlantic Trade and Investment Partnership with the EU, a U.K.-commissioned study found that it would increase trade between the two countries by some 38 billion pounds a year by 2027.

The TTIP is a logical template for any new deal. The U.K. hasn't negotiated a trade agreement since it joined the EU, so piggybacking on the experience of the bloc's master negotiators makes sense. That said, achieving Fox's trade-volume goal will require going to the limit of what the TTIP contemplated. That means removing all tariffs and 50 percent of all "actionable non-tariff barriers," including 75 percent of restrictions on chemicals, vehicles and business and technology services. Among the highest non-tariff barriers are those for food: They increase U.S. importers' cost of accessing the U.K. market by an estimated 46 percent.

The food issue is likely to be the most controversial. The TTIP died in part because Europeans -- Germans in particular -- feared a drop in quality standards and the growing power of U.S. multinationals. In the U.K., EU membership has raised the quality of local produce and -- at least in London -- improved the availability good food from Italy, France and Spain. Anyone who has had a chance to compare the food in the average European store -- including a Tesco in the U.K. -- with its U.S. counterpart knows how obvious the quality and taste gap is.

Understandably, the public discussion of a potential deal with the U.S. has focused on food, and specifically on the American practice of washing chicken carcasses in a chlorine solution (banned in the EU since 1997). Pressed by pro-EU campaigners to eat chlorinated chicken on his U.S. trip, an irate Fox remarked that the media were "obsessed" with an issue that wouldn't come up until a late stage in the talks. But Brits can be forgiven for worrying about U.S. chicken flooding their supermarket shelves: Even if it is is safe and 20 percent cheaper than poultry produced in the U.K. to EU standards, many Britons would rather stick with the kind of food to which they have become accustomed. And no matter how many scientists defend genetic modification and the various additives that are permissible in the U.S., freeing up the markets for these imports won't be popular.

Meanwhile, the balance of power in the negotiations doesn't bode well for the U.K. side. It's the smaller market, accounting for less than 3 percent of U.S. trade, and the government of Prime Minister Theresa May needs a quick success with a major trading partner. Fox has already been building up expectations: In a recent article in The Sunday Times, he promised that the U.S. deal would be "just the beginning" of opening up post-Brexit U.K. to global trade.

Trump, by contrast, is in no hurry. A deal makes sense for him only if he wins in zero-sum terms. U.S. negotiators might not take Trump's urge to stick it to the EU too seriously, given that annoying the world's largest economic bloc isn't in the country's strategic interests. But they won't be able to ignore Trump's desire to do only deals that improve the U.S. trade balance. Trump likes imagining trade in terms of tangible objects, such as cars or, yes, chickens. So, perhaps for a better deal on services, the U.K. will need to give on things like cars and food -- and the U.K. government won't rule out changing some quality regulations to do a deal.

Weak as the U.K. may be in the Brexit talks, it has a stronger hand than with the U.S. It's a bigger trading partner, absorbing between 8 and 17 percent of the exports of the remaining 27 EU nations (depending on the measurement method). And EU negotiators haven't attended the Trump school of economics: They aren't aiming to increase their trade balance with the U.K. at any cost.

The U.K. ought to concentrate on the more important trade relationship with the EU. With the right concessions, it can still get a good deal. Hoping for a victory with the outwardly friendly Trump administration is delusional.

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