U.K. Race for 2020 Trade Deals Gets Off to a Mixed Start

(Bloomberg) --

The U.S. and the British governments are sounding keen to seal a deal that could reduce tariffs, eliminate non-tariff barriers and increase market access between the two nations.

For Britain, its departure from the EU has unshackled its negotiators and created a golden opportunity to forge a U.S. trade deal that Brexiteers have long touted as a key benefit of leaving the EU. America is already the U.K.'s largest trading partner after the EU, with annual two-way trade totaling more than $230 billion, according to data from the U.S. Trade Representative.

What's more, the U.K. and the U.S. are aligned in their frustration with Brussels' heavy-handed approach to trade and commercial regulations and are eager to craft new rules that better suit their domestic needs.

So a modest trade deal between London and Washington should be relatively easy to conclude, particularly if the political will to do so remains strong.

On Monday the U.K. Department of International Trade said it will not give ground to the U.S. on politically sensitive issues like Britain's National Health Service or chlorinated chicken.

American trade chief Robert Lighthizer shrugged off the U.K.'s concerns and said they weren't actually all that contentious. “I don't think either of those are going to be what sinks us,” he said at the Oxford Union on Monday.

In contrast, Britain's effort to unwind its trade relationship with the European trading bloc could prove to be one of the hardest negotiations in a generation. The effort will entail sprawling talks covering a myriad of critical regulations regarding tariff lines, quotas, subsidies, border controls, data and cross-border services.

Political pressure, economic trade-offs and a tight timeline may well increase the possibility that the EU and the U.K. talks fail, leaving them to trade according to World Trade Organization terms on Jan. 1.

In that case, the U.K. will become subject to an abrupt economic shift with its largest trading partner that results in potentially more cumbersome customs checks and increased average EU tariffs of 12% on U.K. agricultural exports and 4.2% on non-agricultural goods.

A U.S. trade agreement is unlikely to cushion the blow of that no-deal Brexit scenario. Currently the U.K. exports 46% of its goods to the EU and 13% of its goods to the U.S.

So, yes, a modest trade deal with the U.S. would be good for Britain.

But a comprehensive accord with the EU is the far bigger prize, and one that's increasingly difficult to see happening without months of more uncertainty about the U.K's economic future.

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--With assistance from Lucy Meakin.

To contact the editor responsible for this story: Brendan Murray at brmurray@bloomberg.net, Richard BravoZoe Schneeweiss

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