A new administration – A whole new world? US-UK trade relations and Biden

Holger Hestermeyer | February 2021

Brexit has divided the UK. From week to week the trenches between remainers and leavers have gone deeper. The deeper the trenches went, the more Brexit came to affect our views on other matters, as well. Hardly any topic was left unaffected by the separation into two camps. Even discussions about the Covid-pandemic eventually turned to Brexit.

It is hardly surprising, then, that Brexit also crept into the way in which we look at the world. And that perception started to be skewed. When Donald Trump offered a full-throated endorsement of Brexit and his administration downgraded US relations with the EU, he triggered all the signals of the domestic UK debate. The pro-Brexit side endorsed him as a trump for Brexit Britain and saw a great future for a new, improved, special relationship. “It is our national good fortune that the president with whom we will develop this new arrangement is Mr Trump. His election depended upon similar factors to those that led to Brexit.” wrote, for example, Jacob Rees-Mogg in The Times. Much hope was placed in a free trade agreement with the US. The Trump administration raised the expectations: In February 2019 the process towards a UK-US Free Trade Agreement began with the US publishing its Specific Negotiating Objectives.

With the arrival of the pro-Irish anti-Brexit Biden, the tables of the UK debate have turned. It is now the anti-Brexit side of the debate that feels one of their men is in the White House. To what extent that is the case, is the subject of much debate. And that debate can become absurd: The order in which US officials place phone calls can dominate a day’s news. Biden’s actual or potential appointments are carefully, obsessively, screened for their attitude towards Brexit, at times with the underlying assumption that a person cultivating good relations with the EU or any of its 27 member states cannot be good for the UK, because of Brexit.

It is time to lay this obsession to rest. Brexit cannot and does not explain the world. US Presidents have their own set of priorities, their own lenses through which they see the world, often – just like in the UK – defined by domestic rather than international preoccupations. It is those priorities that will determine a US administration’s approach towards trade policy, and their approach towards a trade agreement with the UK. And those priorities pose three challenges that the UK, just like any partner, would have to overcome to reach a trade agreement with the US.

The first challenge is that the US is inflexible when it comes to trade agreements. That is not just due to the fact that as the world’s largest economy and lone superpower the US has the power to insist on its position. It is also a result of the US constitution and the procedures through which the US defines its trade policy. Constitutionally, the US is a federal system in which the states guard their competences with ferocity, limiting the negotiating space of the federal government. Procedurally, the US has established an intricate system that has refined US Trade Policy over decades. A complex system of 26 advisory committees, established in 1974, ensures that the policy reflects the interests of domestic players. In their general outlines those interests are well known. In fact, a US Statute known as “Trade Promotion Authority” lays down the procedures under which a President negotiates free trade agreements and explicitly lists the trade negotiating objectives of the United States for US trade agreements. The procedure ensures that Congress and the President are on the same page when it comes to a US trade agreement. That procedure strengthens the hand of the US in any negotiations, but it also makes the US less flexible in trade negotiations. The lack of flexibility shows: The US has notified 14 free trade agreements to the WTO. That is fewer than China’s 16 and a far cry from the UK’s 32 or the European Union’s 45.

The second and far more difficult challenge is that the US political mood has turned against free trade in general and free trade agreements in particular. Even though the US economy has done relatively well despite the crises of the last decades, manufacturing employment has declined particularly in the first decade of the new millennium. Recent studies place the Scandinavian countries far ahead of the US in terms of social mobility, once the essence of the American Dream. Often, fingers are pointed to trade, and at times specifically to China’s entry into the World Trade Organization in 2001.

These developments have been long in the making, but with Donald Trump in office, “America first” became the battle cry of the government and tackling China its first priority. Donald Trump pursued that priority with a peculiar strategy: rather than building alliances, the US declared the steel produced by close allies – including Canada – a threat to national security. While the end of the Trump administration will guide US policy into calmer waters, neither the mood music of the population, nor that of Congress towards trade has changed.

And thus, rather than clearly breaking with an “America first” trade policy, President Biden signed an Executive Order strengthening Buy American provisions that force government to buy American, rather than foreign goods. Rather than breaking with Trump’s tariffs, he reinstated tariffs on aluminum exported from the United Arab Emirates. And as to trade agreements the administration has made clear that they will not be a priority. The only glimmer of hope is the agreement to make Ngozi Okonjo-Iweala Director-General of the WTO. Anyone who wants to sign a new trade agreement does not just need to convince the President, but faces the uphill struggle against the country’s mood. The reality of US trade agreements illustrates the point: Since 2012 it has not signed new free trade agreements – it has merely updated old ones – in particular NAFTA to USMCA and signed smaller agreements.

A final obstacle to a trade agreement with the US is that the Trade Promotion Authority that guides the negotiation of US trade agreements expires on July 1, 2021. While it is, in theory, possible for a trade agreement to be negotiated without that authority, it is in reality far more likely that any trade agreement will have to wait for the authority to be extended.

And Brexit?

A pragmatic US President, any pragmatic US President, is aware that America profits from its allies. Based on shared values, a shared history, shared strategic interests, shared traditions and beliefs the UK, the EU and its 27 Member States occupy a central place among US allies. Brexit or no Brexit, these US interests have not changed. Brexit does not stand in the way of a UK-US trade agreement, as long as strategic interests (such as peace in Northern Ireland) are respected. But Brexit does not change the reality of US trade policy, either.