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WILL PRIORITISING a UK-US FREE TRADE AGREEMENT MAKE OR BREAK GLOBAL BRITAIN? Transatlantic Trade and Economic Cooperation Through the Pandemic

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WILL PRIORITISING a UK-US FREE TRADE AGREEMENT MAKE OR BREAK GLOBAL BRITAIN? Transatlantic Trade and Economic Cooperation Through the Pandemic WILL PRIORITISING A UK-US FREE TRADE AGREEMENT MAKE OR BREAK GLOBAL BRITAIN? Transatlantic Trade and Economic Cooperation through the Pandemic May 2020 Will Prioritising A UK-US Free Trade Agreement Make Or Break Global Britain? Transatlantic Trade and Economic Cooperation through the Pandemic Ed Balls Nyasha Weinberg Jessica Redmond Simon Borumand May 2020 M-RCBG Associate Working Paper Series | No. 136 The views expressed in the M-RCBG Associate Working Paper Series are those of the author(s) and do not necessarily reflect those of the Mossavar-Rahmani Center for Business & Government or of Harvard University. The papers in this series have not undergone formal review and approval; they are presented to elicit feedback and to encourage debate on important public policy challenges. Copyright belongs to the author(s). Papers may be downloaded for personal use only. Mossavar-Rahmani Center for Business & Government Weil Hall | Harvard Kennedy School | www.hks.harvard.edu/mrcbg Abstract Talks on a future Free Trade Agreement (“FTA”) between the United Kingdom and United States began on May 5 2020. This paper, the fifth in a series looking at the impacts of Brexit on the UK economy and trade, examines whether talks might result in an FTA between the US and UK, and what the impact of such a deal could be. Based on interviews with senior government officials, trade and sector experts on both sides of the Atlantic – before and during the Covid-19 Pandemic - we explore the prospects of a deal and what shape that might take. We conclude that a full FTA with the US before the summer of 2020 is impossible given the impacts of Covid-19 and roadblocks and risks involved. A ‘mini-deal’, however, is a possibility. Yet such a ‘mini-deal’ poses an important strategic dilemma for the government: will it draw the UK into an emerging US foreign and economic policy based on anti-China bilateralism, closing the door on ‘Global Britain’; or can the UK use this opportunity to help encourage the US back into the global community? Acknowledgements An earlier version of this paper was presented at Harvard University’s Kennedy School on 10 March 2020, with Larry Summers, Paul Tucker and Cathryn Clüver Ashbrook as discussants. We would also like to thank the Mossavar-Rahmani Centre at HKS, the Strand Group at King’s College London, Angela Garcia-Calvo for research support and the government representatives, trade experts, companies and trade associations we interviewed for making the time to share their perspectives with us. We extend our thanks to Peter Sands, Mehek Sethi, Sebastian Leape and Eleanor Hallam, who co- authored the first 2018 paper and set us on this path, and have continued to offer advice as we have prepared this second paper. Finally, we would like to thank those who took the time to review the draft report and provide us with comments. The authors take full responsibility for the content and conclusions of this report, including any errors and omissions. Affiliations Ed Balls – Research Fellow at the Mossavar-Rahmani Centre for Business and Government at Harvard Kennedy School and Visiting Professor at King’s College London Nyasha Weinberg – Research Fellow at the Bingham Centre for the Rule of Law, Harvard Kennedy School MPP’17 Jessica Redmond – Harvard Kennedy School MPP’21 Simon Borumand – Harvard Kennedy School MPP’21 2 Contents Abstract ............................................................................................................... 2 Acknowledgements ................................................................................................ 2 Affiliations ............................................................................................................ 2 Contents .............................................................................................................. 3 Executive Summary ............................................................................................... 4 Introduction ....................................................................................................... 4 Summary of Findings .......................................................................................... 5 Conclusion ....................................................................................................... 11 Political and Economic Snapshot ......................................................................... 12 Methodology ....................................................................................................... 13 Objectives ....................................................................................................... 13 Approach ......................................................................................................... 13 Structure of the Paper ....................................................................................... 14 Background ........................................................................................................ 15 Covid-19 and the global trade landscape ............................................................. 15 UK Trade ......................................................................................................... 16 US Trade ......................................................................................................... 20 Progress towards a US-UK deal .......................................................................... 21 Economic Impact Estimates ............................................................................... 22 Levelling up the UK? ......................................................................................... 23 Finding 1: With the UK now out of the EU, a quick deal with the US offers an obvious launchpad for the ‘Global Britain’ agenda - and a way to show economic momentum as lockdown restrictions lift ...................................................................................... 24 Finding 2: Despite Trump’s rhetoric, it is not clear whether the US is actually committed to delivering a mutually beneficial deal .................................................................. 29 Finding 3: Detailed trade negotiations between the US and UK are going to be tough, with the US conceding little and making demands that the UK will find hard to meet ... 42 Finding 4: UK business have consistently argued that a substantive UK-EU deal is the priority; a UK-US FTA risks preempting the relationship with the UK’s main trading partner. ............................................................................................................. 51 Finding 5: The Covid-19 pandemic reinforces the UK’s strong national interest in using its ‘Global Britain’ agenda to strengthen multilateral economic and health cooperation. .... 61 Finding 6: A UK-US ‘mini-deal’ is still possible this year - but is this a risk or an opportunity? ....................................................................................................... 70 Conclusion.......................................................................................................... 75 3 Executive Summary Introduction The United Kingdom (“UK”) has now left the European Union (“EU”). A quick deal with the US is considered one of the prizes from departure. It offers an obvious launchpad for the ‘Global Britain’ agenda and a way to show economic momentum as lockdown restrictions lift. Forging new trade deals by leveraging historical international links is viewed as an important step towards establishing the “enterprising, outward-looking and truly global Britain” articulated by Prime Minister Boris Johnson. With significant government enthusiasm for a UK – United States (“US”) Free Trade Agreement (“FTA”) and promises to strike a deal as “quickly” as possible coming from both sides of the Atlantic, we have decided to review the prospects for and consequences of such a deal. The UK-US ‘special relationship’ is characterised by close political, cultural, security and economic ties. After the EU, the US is the UK’s largest trading partner. The possibility of a trade deal with the US has captured both political and public imagination. Our previous 2018 paper On the Rebound: Prospects for a UK-US Free Trade Agreement - written two years ago - examined the likelihood of a US-UK FTA and the potential benefits for both countries. We found slim prospects for a meaningful deal offering significant benefits for the UK. Instead, we identified a significant imbalance in political will for a deal, narrow scope for agreement on important issues and the fact that a deal would force the UK to confront a complex choice between alignment with the EU and US trading spheres. To move beyond the political rhetoric and promises, we have again conducted interviews with senior officials, trade associations, academics and trade experts in the UK, US and the EU to assess the prospects for a US-UK FTA, two years after our initial analysis.1 Our research identifies some key upsides, risks, and strategic priorities as ‘Global Britain’ begins to assert itself. The context in which we write this paper is radically transformed. The containment measures to combat Covid-19 have brought the global economy to a standstill. America- China relations have deteriorated significantly and governments are consumed by the search for ways to manage the outbreak and the worst global recession in a century. For the first time since the great depression, both advanced and emerging economies are all in recession. The IMF has projected
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