After Brexit

This article is in The Spectator’s February 2020 US edition. Subscribe here.

The US-China trade war is easing; a new trade deal with Canada and Mexico has been passed by a large cross-party majority in the House of Representatives — largely unnoticed, as it happened in the same week as Donald Trump’s impeachment. The idea that the president is taking the world down a blind alley toward an era of protectionism is beginning to fade. So what now of the prospects for that other trade deal that Trump has promised: between the US and Britain?

Even while waging trade war with China, Trump was an enthusiast for a UK trade deal, suggesting last July that it could lead to a ‘three-to-four, five-times increase in trade’ — although in common with many Trumpian statistics, the reasoning behind these figures remains obscure. Such a bilateral arrangement has not been possible during Britain’s 47-year membership of the European Union. Under the EU’s rules, all trade matters must be negotiated collectively. But with Britain’s departure from the EU, not only does such a deal become possible, it becomes one of the foremost foreign policy objectives of British prime minister Boris Johnson.

That matters because the US has tried and failed to do a trade deal with the EU. In spite of 15 rounds of negotiations between 2013 and 2016, Barack Obama saw his Transatlantic Trade and Investment Partnership (TTIP) collapse as European activists protested at what they saw as measures designed to undermine EU laws on labor, the environment and product standards. In the spring of 2016, shortly before Britain held its referendum on EU membership, and when TTIP was still alive, Obama declared that Britain would be ‘at the back of the queue’ if it voted to leave. But now Britain is first in the queue — while TTIP talks have been described by the EU as ‘obsolete’.

If the US and Britain can complete a trade deal it will be a huge boost for the government of Boris Johnson, who as one of the leading figures of the ‘Leave’ campaign in 2016 argued that life outside the EU would mean more, not less, engagement with the rest of the world. It would vindicate critics of the EU who have long argued that while the EU is theoretically committed to free trade, it is in practice too protectionist in nature to cut deals with the largest economies.

One of the problems is the cumbersome nature of EU politics: a trade deal has had to please all 28 member states. Before the EU eventually did a trade deal with Canada, the process was temporarily halted by rejection by a regional parliament in southern Belgium. A straightforward bilateral trade deal between the US and Britain would have fewer barriers to leap.

A US-British deal would be a boon for Trump too, if he could sign off on something, or at least show significant progress before election day in November. Talks have been going on for months but there are still some significant hurdles, particularly in two fields: health services and food standards.

During the recent British general election campaign the chief line of attack employed by the opposition Labour party was that the ruling Conservative party was planning to do a US trade deal which would result in the sale of Britain’s National Health Service (NHS). No evidence for this was ever presented, other than that a think tank which was launched in a room in the Foreign Office while Johnson was foreign secretary had proposed the NHS be opened up to competition. A 451-page document which Labour claimed contained evidence that the Conservatives planned to sell off the NHS turned out to say nothing of the sort — although it did suggest that negotiators had been discussing the price of, and length of patents on, medications. Currently, the NHS, as a state monopoly, has such buying power that it can negotiate lower prices than US healthcare providers.

The constant attacks by Labour reminded the Conservatives just how sacred the NHS is in the eyes of many Britons. Not only would it be politically impossible for a British government to end the principle of health care that is free at the point of delivery, it would be extremely difficult to contract out more than a tiny proportion of NHS work to the private sector. Currently, roughly 7 percent of NHS services are provided by the private sector, but Johnson’s election campaign all but ruled out an expansion of this figure. The section of his party manifesto dedicated to trade stated: ‘The NHS is not on the table. The price the NHS pays for drugs is not on the table. The services the NHS provides are not on the table.’

While visiting Britain in June, Trump was asked whether trade talks between the two countries would involve seeking access to the NHS for US healthcare companies and replied simply that ‘everything is on the table’. The next day, under pressure from the British government, he backtracked and suggested that Britain’s public health system was not within the scope of the negotiations. It will certainly make a trade deal less attractive to US healthcare providers and drug companies — though in the case of the latter, the manifesto did not entirely rule out the possibility that Britain might be open to discussions on the lengths of drugs patents. This would, after all, be an area of interest to Britain’s own sizable pharmaceutical sector.

Expect, in other words, Britain to allow a limited concession on drug patents but no great increase in opportunities for US healthcare providers. But what about food, the other great possible sticking point? Two issues are especially controversial in Britain: market access for beef from cattle raised with growth hormones and for chicken washed in chlorinated water. It is not easy for outsiders to understand why the washing of chickens to kill off bugs should be such a touchstone political issue in Britain. Britons, after all, happily drink tap water that has been chlorinated and eat salad that has been washed in chlorine. The real health risks are the bacteria that the chlorine is designed to kill: British chicken-producers have a particular problem with the campylobacter bacterium, which has been found in the majority of chickens bought in British shops.

Nevertheless, the Labour party, along with other campaigners, has managed to establish in many British minds a narrative that the US has far poorer food safety standards than does the EU. A similar claim has been made on environmental standards, in spite of some obvious evidence to the contrary: for example it was US regulators, not EU ones, who first detected in 2015 that Europe’s largest car-producer, Volkswagen, was cheating on emissions tests.

Johnson’s Conservative party was moved to insert into its manifesto a clause stating: ‘In all our trade negotiations we will not compromise on our high environmental protection and animal welfare standards.’ While chlorine-washing could arguably be said to improve food safety standards, and therefore could be allowed without breaking this commitment, US poultry farmers should not get their hopes up: the British minister in charge of overseeing international trade deals, Michael Gove, was previously environment secretary, in which capacity he ruled out allowing chlorinated chicken into UK shops. A US-UK trade deal will, then, be hampered by the same accusations as those against TTIP: that safety standards are being used as underhand protectionist measures. Over and over again, agricultural goods have proved the sticking point in trade negotiations as governments of wealthy nations are reluctant to expose their powerful farming lobbies to international competition.

That said, chicken might prove to be less of a crucial issue than many people imagine. Not all US-produced chicken is, in any case, washed in chlorine — and it is surely not beyond the ability of the poultry industry to come up with some other treatment for chicken bound for UK markets. Moreover, the negotiating objectives for a US-British deal published by the Office of the US Trade Representative in February 2019 do not place any great emphasis on agricultural goods: the two issues singled out are digital trade and financial services. It is US tech giants, not farmers, who are going to be pulling the strings. To get a clue of what a US- British deal might look like on this front, just look at the text of USMCA (the US-Mexico-Canada Agreement). One of its priorities is the free flow of data. This could itself prove controversial in Britain as the likes of Facebook and Amazon stand accused of paying too little tax and finance ministers have been trying to dream up new ways of taxing technology that are harder to avoid than national-based corporation tax.

But above all this stands the issue of timing. While the British government is under no great time pressure to complete a trade deal with the US, Johnson has set himself a deadline of December 31, 2020 to complete a trade deal with the EU. That is especially important as such a deal will replace Britain’s current frictionless trading arrangement under the EU single market. The EU has already said that it does not believe the deadline allows sufficient time and has claimed that the only way Britain might secure a deal within that time frame is to accept EU product standards and labor laws. Throughout the Brexit negotiations the EU has attempted to force Britain to remain within its regulatory orbit — something that Britain has sought to resist.

On the other hand, Johnson’s government will see a US trade deal as a means of making a statement if trade talks with the EU fail. If the EU doesn’t want to trade with us, the prime minister will be able to say, then the US will. Britain’s ‘Remain’ campaigners have claimed that swapping free trade with the EU for free trade with the US is akin to giving up a three-course lunch in favor of a bag of chips. But the figures do not support that assertion: while trade between Britain and the EU has been falling as a proportion of Britain’s overseas trade, that with the US has been rising. The US is already Britain’s biggest single trading partner, with trade of $264 billion in 2018, a 3 percent rise on 2017. Britain’s next biggest partner is Germany, with which it did $179 billion of trade in 2018, a fall of 2 percent on a year earlier. Moreover, Britain runs a substantial trade surplus with the US — a reversal of its position with the EU. A US trade deal can be sold as a means of boosting Britain’s exporters — something which EU membership has in many ways failed to do.

The shape and extent of a US-British trade deal is going to depend an awful lot on what Johnson’s government sees as the greater priority: clinging on to his country’s existing trade freedoms with the EU or opening new ones with the world’s largest economy. The British government will come under huge pressure if it fails to land a deal with the EU by the end of the year, but such is its motivation to complete a deal with the US that if it is forced to choose one or the other, it could well end up favoring the latter.

This article is in The Spectator’s February 2020 US edition. Subscribe here.