December 22, 2016
The jury is still out on the impact of the U.S. presidential elections on the UK and its Brexit strategy. For pro-Brexit campaigners, the election of Donald Trump – who has called himself “Mr. Brexit” – is outright positive. It offers a promise of tighter trade and political ties with a long-standing ally at a time the UK is about to cast away from the EU (and potentially, lose access to its single market). On the other hand, Trump’s policy instincts – with its mix of protectionism, isolationism and warmer ties with Russia – go against the UK’s long-standing interests. Given the genuine uncertainty as to how far Trump would go to honour his election pledges, his victory could bring both opportunities and the risks for the UK.
But let’s start with the positives. During the campaign, Trump rejected President Barack Obama’s warning that the UK would go to the “back of the queue” for a trade deal with the U.S. He’d like Brexit to succeed and could prioritize an agreement with the UK over the stalled and tortured EU-US trade agreement. Whilst TTIP negotiations are now on hold, progress made on some fronts could facilitate a future US-UK bilateral deal. For example, beyond mere tariff reductions on goods, Washington and London may be able to make savings through mutual recognition in the pharmaceuticals or automotive sectors, benefiting UK and US businesses and consumers alike.
There are hopes that Trump’s victory could also strengthen the UK’s hand in the upcoming Brexit negotiations. The new US administration could use its influence in Brussels to help the UK secure a better exit deal. In addition, Trump’s questioning of the nature of the US obligations to NATO could bring security issues back on the EU’s agenda and help strengthen the UK’s bargaining position. In the face of Russia’s expansionism abroad, the UK’s military and intelligence capabilities may become more valued and possibly convince Moscow-wary Eastern EU member states to review their Brexit stance.
However, to keep in check European populists (especially ahead of Dutch, French and German elections next year), EU 27 policymakers have strong incentives not to seek a compromise deal with the UK. Brussels’ insistence that the UK cannot maintain full access to the EU’s single market while also meeting wishes of the Brexit voters to curb migration could result in the “hard” Brexit outcome. Under this scenario, a trade deal with the US could hardly compensate for higher trade costs with the EU. About half of all British exports go to the EU, compared to 15% that are absorbed by the US. Additionally, the UK also runs a trade surplus with the U.S., which could lessen Trump’s appetite for a deal that could worsen the U.S. trade deficit.
Even if both sides show sufficient enthusiasm for negotiations, an actual deal could not happen overnight. As an EU member, the UK is not allowed to officially trigger bilateral negotiations before the formal exit. Meanwhile, Trump’s “America first” policy instincts would also dictate a wait-and-see approach until there is more clarity on the UK’s post-Brexit trade realities. This means no UK-US negotiations will likely start in earnest before 2019, halfway into Trump’s term. Before his initial term is complete, Trump could only forge a quick deal on tariff reductions on some exports, a far cry from a more substantial trade deal that would involve regulatory alignments.
Finally, Trump’s protectionist policies could upend the global trading system and hamper the UK’s efforts to forge new trade pacts. Trump has blamed free-trade deals for hurting American jobs and wages. He promised to tear up the North American Free-Trade Agreement with Mexico and Canada and impose a 45% tariff on imports from China. Should other countries get sucked into a downward protectionist spiral, the UK may find itself seeking new trade deals at the time when everyone else is starting to look inward. This, of course, would further complicate the long and uncertain Brexit process the UK is set to embark upon.
The waters across both ponds are muddy. Some six months after the Brexit referendum there is still no clarity on the sort of deal the UK is likely to be seeking from the EU 27. Despite comments Trump made during the campaign, the new U.S. administration certainly does not have Brexit as a top policy priority. The jury is out on whether the ‘special relationship’, vaunted and cherished in some UK political circles, is alive and, if so, whether it will influence the Brexit negotiations – and to whose benefit.