Financial Times, 12 May 2020

THE UK IS ON THE HORNS OF A DILEMMA IN US TRADE TALKS

By Ed Balls

With both Britain and the US under lockdown, and governments in London and Washington struggling to ramp up testing and cope with collapsing economic activity, now is not the obvious time to begin negotiating a Free Trade Agreement.

Yet bilateral talks are getting under way and for both governments there is clear political logic to this. With economic growth plummeting and global trade collapsing, both want optimistic signals to send to the business community. US President Trump, preparing to run for re-election this November, badly needs to show voters his ‘America-First’ economic agenda remains on track.

As for Boris Johnson, the UK Prime Minister, with EU trade talks mired in disagreement, he will be hoping to focus minds in Brussels on the alternatives he claims are available. A UK-US trade deal has long been seen as the launchpad for the ‘Global Britain’ agenda. But how the UK chooses to engage with Trump’s increasingly belligerent mercantilism could make or break that agenda.

Realistically, there is no chance of a UK-US trade deal being agreed before this year’s US election. But the UK and US could opt for a pre-election political ‘mini-deal’ - a high-level declaration executed without Congressional approval; as our new Harvard paper discusses, this would be possible even amid the Covid-19 crisis. It would not take the form of a traditional free trade agreement and could include a range of general declarations, commitments, or tariff cuts, as seen with the US-Japan and US-China ‘phase 1’ deals.

Still, even getting ‘in principle’ UK-US agreements on thorny trade issues is far from easy. Long-held American ambitions for a UK-US bilateral deal have not gone away and include greater access to UK agricultural markets based on lower tariffs and US-style regulation, deregulation of NHS drug pricing and opening up public procurement to US companies. More recently, new issues have also caused friction between the US and UK on digital taxation, 5G procurement and privacy standards. Unsurprisingly, British business is clear that an FTA with the EU - by far the UK’s biggest trading partner - is the priority and should deliver as frictionless trade as possible. But unless there is UK movement away from EU regulatory and tariff alignment, the US has little to gain economically from a UK bilateral deal.

At the same time, the two countries’ different responses to the pandemic has thrown up a new and difficult choice. In recent weeks, the UK has rightly pushed for multilateral cooperation: to coordinate the global search for a vaccine, support the World Health Organisation and provide country-by-country support through the IMF and World Bank. Multilateral cooperation, in the face of a global crisis, has been noticeably lacking in recent weeks - the G20 has been all but dormant and the UN Security Council can’t agree on a response. Encouragingly, Whitehall officials see the UK’s forthcoming presidency of the G7 as an opportunity to champion a new multilateralism in economic, trade and health policy in the wake of the global pandemic.

By contrast, the Trump administration has withdrawn funding from the WHO, did not attend the UK co-chaired vaccine conference and has doubled down on its increasingly hostile anti-China, anti-global governance view of the world. Mr Trump will be looking for allies in the coming weeks and will look to Britain for support.

Recent US trade agreements with Canada and Japan suggest the Trump administration will seek to bilateral trade policy to pursue its aggressive anti-China economic agenda. Murmurings from Conservative backbenchers in the UK Parliament also suggest growing pressure on the Johnson government to harden its line on China.

So now is not an easy time for the UK to make the case for enhanced multilateralism. But if the UK were able to broaden any mini-deal beyond the US-UK bilateral relationship, and encourage the US to move away from unilateralism and towards re-engagement with the multilateral system, it would do the world a great service.

Persuading Mr Trump to change course is daunting. At the same time, the political pressure on Mr Johnson to cut a deal with him will be strong. Yet if the UK ends up backing an emerging US foreign and economic policy based on anti-China mercantilism, this will in effect close the door on the Global Britain agenda - and run directly against the global cooperation needed for Covid-19 recovery.

That is the strategic challenge for the UK government in its US bilateral talks. Which way will the prime minister jump?

Ed Balls is a Research Fellow at the Harvard Kennedy School and a former UK Cabinet Minister and Chief Economic Adviser to the Treasury. This article is based on a new Harvard working paper LINK