When Theresa met Donald

Suddenly everyone is talking trade deals – while TTP and probably TTIP bite the dust. Why does President Trump prefer bilateral trade deals to multilateral ones? What will the markets make of it all? And what happened when Theresa met Donald?

Ciao TTP

On 23 January President Trump signed an order to junk the Trans-Pacific Partnership (TPP) deal, leaving many to assume that the Trans-Atlantic Trade and Investment Partnership (TTIP) will also be put out of its misery soon. All mention of TTIP had already been removed from the White House website within hours of Mr Trump’s inauguration last Friday.

The ubiquitous Nigel Farage popped up to tell us that this was a moment of opportunity for the UK to strike a trade deal with the USA. The President has made clear that while he has an animus against multilateral trade structures, he is open to new bilateral trade deals with favoured countries. Though, presumably given America First, his administration would push a hard bargain even with its closest friends.

The Trans-Pacific Partnership (TPP) was a trade agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the USA and Vietnam. The final draft was signed on 4 February 2016 in Auckland, New Zealand, concluding seven years of negotiations.


(Barak Obama supposedly vetoed Thailand’s inclusion. Thai-US relations were dire under Obama and the Bangkok Post is cock-a-hoop about President Trump[i] and his decision to throttle TPP.)

The TPP was to have included measures to lower both non-tariff and tariff barriers to trade, and to establish a dispute settlement mechanism. By 2030, TPP members would have been able to access one another’s ports with zero tariffs or restrictions. But it will not now be ratified.

Alexander Downer, the former Australian foreign minister who now serves as High Commissioner to London, mooted that the large Pacific nations might even look to China to sustain the deal already agreed. This is ironic as the original motivation for TTIP on the part of the Americans was to contain China.

The markets responded positively in the US while European bourses dipped. In fact, on Wednesday, 25 January the Dow Jones broke the 20,000 barrier for the first time ever. Even TPP’s most breathless proponents estimated that it would boost the US economy by an underwhelming 0.5 percent by 2013[ii]. Opponents of TPP, who include the Bernie Sanders wing of the Democratic Party as well as Trumpists, argued that it would destroy jobs and the environment and play into China’s hands.

And it’s ta-ta to T-TIP

TTIP is (was) the Atlantic version of the TPP. Whereas most TPP signatories were keen, TTIP was always beset on the European side with anti-American angst. Even if the mighty United States does not smother it we always knew that it will probably be vetoed anyway by the Parliament of Wallonia. But what was it?

We don’t really know. The negotiated TTIP proposals are classified from the public, and can be accessed only by authorised persons. But multiple leaks of proposed TTIP provisions have provoked consternation.

Mr Trump is ideologically opposed to multilateral trade deals because he knows that they are usually inflexible and have unforeseen consequences.

The European Commission says that the TTIP would boost the EU’s economy by €120 billion, the US economy by €90 billion and the rest of the world by €100 billion. Some economists argue that TTIP could create millions of new jobs. But Dean Baker of the US think tank the Center for Economic and Policy Research has argued that the economic benefits per household would be small. The STOP TTIP demonstration in Berlin in October 2015 mobilised around 250.000 protestors.

Mr Trump is ideologically opposed to multilateral trade deals because he knows that they are usually inflexible and have unforeseen consequences. He is instinctively opposed to the idea of giving decision-making power away to supra-national bodies (including WTO). Bilateral deals are more flexible and easier to tweak when circumstances change.

Au revoir “Single Market”

Since Theresa May’s Lancaster House speech of 17 January it has been clear that Britain will be leaving the EU’s Single Market and will aim to have a status outside substantive elements of the Customs Union including the Common External Tariff and Common Commercial Policy. As such, Britain will be able to make its own bilateral trade deals, including one with the United States for which President Trump has expressed enthusiasm. Theresa May also ruled out adopting any notion of associate EU membership. Britain is definitely not going to join the EFTA countries.

The Prime Minister summoned European ambassadors to Lancaster House and took questions from Le Figaro and El País. Her advocacy for a new strategic partnership based on trade and security ought to have been welcomed on the Continent. Instead, most Europeans responded with mockery. German newspaper Die Welt bore the headline “Little Britain”. The British should not underestimate the extent to which the Europeans’ amour propre has been wounded by Britain’s unilateral decision to divorce. They are not in an entirely rational place at the moment, but they will get over it.


Mrs May acknowledged the EU position, or rather Mrs Merkel’s position, that the four freedoms of the Single Market are indivisible – even though other trading blocs manage without unrestrained freedom of movement. Theresa May’s message – in contrast to Mr Trump’s delivered two days before – was that Britain does not want a “greater unravelling of the EU” and that it is in our national interest for the EU to succeed. She explained Brexit in terms of Britain’s distinctive way of doing business rather than the EU’s inflexibility.

Of course, the reaction from Ms Thornberry, Ms Sturgeon, Mr Farron and the BBC boarded on the hysterical. The prevailing view amongst the liberal elite is that full membership of the Customs Union is a sine qua non to maintain our current levels of trade with the EU. This is to exaggerate its value.

Moreover, the UK is largely a service economy. In fact, about 80 percent of our GDP is generated in the service sector and roughly 20 percent in manufacturing. Of course, our manufacturing exports to the EU – from Rolls Royce aero engines to Land Rovers – are hugely important. But the fact is that services remain largely outside the scope of the Single Market. Banking, in particular, is subject to its own rule book.

The foreign exchange markets reacted positively to Mrs May’s speech. It seems that they are no longer spooked by the idea of Britain leaving the Single Market and that they are encouraged by the clarity of Mrs May’s twelve-point plan. Sterling’s strength has continued this week: as I write the Pound is back up to US$1.25.

You can be outside the Single Market and still have access to it.

The price that we pay for membership of the Single Market stroke Customs Union – apart from freedom of movement (i.e. losing control of our borders) – is that we have to make substantial payments to EU coffers. (I am not going to get into a tedious argument about whether it is £350 million a week – but it is a lot of money). And we remain subject to the jurisdiction of the European Court of Justice. Only eight percent of British businesses export to the EU yet all British firms – even high street barber shops and take-aways – have to abide by its regulations.

You can be outside the Single Market and still have access to it. Turkey doesn’t pay a cent of tariffs on its exports to the EU. And after Britain leaves, the EU will account for about 15 percent of world trade with 85 percent conducted in the rest of the world. Admittedly, trading with the 85 percent involves reducing non-tariff barriers that stymie trade in services. But the 85 will have a much faster growth rate than the economically sclerotic 15.

In terms of the Customs Union, it would indeed be inimical to UK exports if British trucks were obliged to stop at Calais for an inspection by customs officials; or if goods had to be stored in warehouses awaiting authorisation. That doesn’t happen to goods coming into the EU from Turkey, Ukraine or Albania, so it would only be applied to the UK as part of Operation Punishment. And that would effectively engender a trade war because Britain would be compelled to do likewise. (The show rooms would soon run out of shiny new Mercedes.) That is what Mrs May was referring to when she said: “That would be an act of calamitous self-harm for the countries of Europe”.

Hello WTO!

Sometime in 2019 Britain will take a seat at the World Trade Organisation (WTO). In fact, we already conduct around half our trade with the rest of the world under WTO rules. The US and China mainly trade with the EU under WTO rules and there is no reason why Britain could not do the same.

Howdy UK-US trade deal!

The man tipped to be the next US ambassador to the EU, Professor Ted Malloch, suggested on Wednesday that a mutually beneficial UK-US free trade deal could be hammered out in just 90 days by cutting out the “bureaucrats” who delay negotiations. (The Sir Humphreys won’t like that.) He rejected claims that an agreement could take more than seven years to be struck because Mr Trump is “high energy” and “can get things done”[iii].

Why would Mr Trump wish to make a trade deal with the UK a priority? First, he genuinely wants to support Brexit – it accords with everything he believes in. Second, as a corollary to that, he thinks it would be one in the eye for the Europeans whom, like many provincial Americans, he regards as a bunch of free-loading anti-American snobs. Third, more substantively, he wants a template trade deal that he can use elsewhere, not least with Canada if and when NAFTA is unwound. (It would also be Mrs May’s model for future trade deals with Canada, Australia and New Zealand, not forgetting India.) Lastly, he thinks Americans could pick up business in the UK from the Europeans if Brexit turns sour (as he thinks likely).


While the UK runs a massive trade deficit with Europe, UK trade with the USA is roughly in balance. According to United States Census Bureau figures (which, confusingly, differ from the UK’s Office of National Statistics figures) last year the US exported US$51 billion of goods to the UK and bought US$49.5 billion of goods from us[iv]. The year before, in 2015, the UK ran a surplus of about US$1.85 billion. But in manufactured goods only the UK seems to have a consistent surplus with America. Last year Britain overtook China as the largest car exporter to the USA[v]. A-listers in LA drive Jaguars; yet one rarely sees a Cadillac in the UK.

This vital trading relationship is underpinned by the fact that each county is the biggest investor in the other. Foreign direct investment (FDI) by the US into the UK amounted to just under $600 billion in 2012, with $487 billion flowing into the United States from Britain. US firms operating in the UK employ 1.3 million Britons, with nearly a million American jobs provided by British companies based in the USA[vi].

If anything this is accelerating in the age of technology. RocketSpace, the Silicon Valley technology incubator, opened a London campus last year precisely to target UK start-ups with US venture capital. And when America slashes corporate taxes a lot of UK FDI will be diverted from elsewhere to the USA.

So it is easy to imagine that a deal could be done in finance and manufactured goods. But agribusiness will be more problematic. The Americans would love to sell us chlorinated chicken, GMO seeds and hormone-enhanced beef. American farmers use pesticides more aggressively than their British counterparts and their animal welfare regulations are laxer. The American meat industry is already eyeing up the British market. They produce more than they need. But whether the British consumer would delight in these products is another matter.

Last year Britain overtook China as the largest car exporter to the USA.

As I have argued elsewhere, economic nationalism and environmental protection (not to mention animal welfare) coincide in the think globally, eat locally agenda. A bad trade deal with America, which opens the floodgates to cheap imports of ethically questionable foodstuffs, would be bad news for UK agribusiness which is on the up.

And then the US pharmaceutical industry will want to sell their drugs to the NHS at market prices. Opposition to opening up the NHS to foreign competition was one objection to TTIP by the Left in Britain. They will see a UK-US trade deal as TTIP through the back door.

If you get into bed with a 400 pound gorilla, there is always a danger of getting squashed. It may yet turn out that the Americans are keener on a bilateral trade deal than the Brits.

When Theresa met Donald

Technically, Mr Trump and Mrs May cannot talk trade because the UK is still a member of the EU. But they can place a putative trade deal firmly on the agenda. Mrs May knows that the first country to do a deal with Mr Trump’s America will probably get the best one.

Sometimes deal-making requires role-reversal to get to yes. Mr Trump, the protectionist patriot, will coo to Mrs May about the virtues of healthy trade flows and cooperation; and free-trading globalist Mrs May will warn Mr Trump about the evils of monopoly pricing. But, as Mrs May said last night, opposites attract.

Theresa and Donald will get along just fine. This could be Reagan-Thatcher II. The special relationship is founded on history, culture and kinship as well as common interests regarding security and trade.

[i] See: https://chinareportasean.wordpress.com/2017/01/23/experts-thailand-to-be-indirectly-affected-in-trump-era/amp/

[ii] See: http://www.newyorker.com/business/adam-davidson/what-the-death-of-the-t-p-p-means-for-america?mbid=nl_170124_Daily&CNDID=48826174&spMailingID=10292807&spUserID=MTgwNzgwOTc1MzE4S0&spJobID=1081995143&spReportId=MTA4MTk5NTE0MwS2

[iii] See: http://www.dailymail.co.uk/news/article-4157162/Euro-collapse-says-man-tipped-EU-ambassador.html

[iv] See: https://www.census.gov/foreign-trade/balance/c4120.html

[v] See: https://www.smmt.co.uk/2016/01/best-year-in-a-decade-for-british-car-manufacturing-as-exports-reach-record-high/

[vi] See: UK Expert: Trump will make the UK-US relationship great again, Independent Journal Review, 11 November 2016 by Lee Cohen.  Available at: http://ijr.com/opinion/2016/11/261877-uk-expert-trump-will-make-the-british-american-relationship-great-again/?utm_medium=social&utm_source=facebook