Can the UK really ‘walk away’ from a trade deal with the EU or US?

Liz Truss should remember Britain needs America and Europe more than they need Britain, says Sean O'Grady

Puffed up? The international trade secretary may be mimicking nature, when creatures have a range of defensive measures they take when confronted with a powerful predator (Getty)

Ever the optimist, the international trade secretary, Liz Truss, launched the government’s proposals for a UK-US trade agreement by declaring that the British side could walk away from the talks (which have not yet commenced) if they didn’t suit Britain. Indeed, warming to her theme as the UK and EU trade negotiators sat down in Brussels for their first formal talks, Ms Truss went further: “We will walk away in both cases if there is not a deal that suits the UK.” Full marks for bravado, Ms Truss.

Of course, this could just be a matter of tactics, the UK pretending to be larger than it really is when faced with two trading partners, each with populations and national incomes roughly 10 times the size of Britain’s. Perhaps Ms Truss was mimicking nature, when smaller, weaker creatures have a range of instinctive defensive measures they take when confronted with a powerful predator, puffing themselves up to prevent being eaten alive. It remains to be seen whether such tricks also work in international economic diplomacy.

Certainly, if size does matter, the UK is at a distinct disadvantage. Given that exports to the EU and the US together account for about two-thirds of the UK’s total exports, and around a fifth of GDP, threatening to flounce out of the two sets of talks simultaneously might be seen as a risky approach, even in the hands of so obviously skilled a player as Ms Truss. Britain needs America and Europe far more than they need Britain.

In opening the talks with America and Europe at the same time, then, the British clearly believe they can play both sides off against each other. Such a game would be admirable were it not done so clumsily and theatrically. The UK hasn’t negotiated a trade deal since it joined the European Union half a century ago, and the EU and the US know it; it is not clear that braggadocio will make up for this lack of British expertise.

As for the UK-US trade deal document itself, there seems surprisingly little in it for either side. With remarkable audacity, the newly “sovereign” independent Britain lays down the law to the economic superpower across the Atlantic. The UK “will not compromise” on a whole range of sectors that the Americans have traditionally regarded as the basis for any ambitious trade deal – as seen most recently in the trade war with China.

There is “no compromise” on animal welfare and food standards, apparently ruling out virtually all major US agricultural products. The now notorious chlorinated chicken, GM-modified grains and other produce, and hormone and antibiotically-treated livestock and food products, are implicitly banned by the UK document. So, again, implicitly, is any access to the National Health Service’s market for pharmaceuticals, data services or outsourcing.

The UK also rules out allowing the mighty US defence industry access to procurement by the Ministry of Defence (at the same time that the British are allowing Huawei to have a role in the new 5G network, much to America’s displeasure). Presumably, too, US-made motor vehicles, usually larger and with higher emissions than European products, will fall foul of the UK’s 2035 target for an end to new internal combustion engine car sales, and commitments under the Paris Agreement (which the Trump administration has withdrawn from). Fracking, too, by US energy giants is out because of the government’s current moratorium. There doesn’t seem much left to tempt the Americans to give up access to their own markets – unless the Americans successfully call the UK’s bluff.

Even on its own terms, the government’s paper projects scant returns for Britain from a US-UK free trade agreement. At worst, the gain in British national income amounts to the annual economic value generated by somewhere the size of Worcester – 0.02 per cent. At best, it might reach the scale of a Wolverhampton or a Swansea – 0.36 per cent of GDP, by 2035.

In other words, the gains from the US-UK free trade agreement are not much more than rounding errors. These minuscule wins from the US deal, on the last published HM Treasury assessment, are many times smaller than the losses from a no-deal outcome with the EU. Even if the UK’s Japanese, Australian and New Zealand deals went well, the numbers still do not add up. As for global Britain reaching out to other fast-growing emerging economies, the UK states in the very first sentence of its policy document that: “The UK will be champion of free trade and seek free trade agreements with like-minded democracies.” That excludes a lucrative slice of the rest of the world, notably China and the Gulf states.

Indeed some sectors, according to the government’s own estimates, could even face a reduction in employment. These sectors could include financial services, where UK entities will need to gain approval on a state-by-state basis in federal America but where US investment houses can presumably build on an already substantial presence in London. The UK’s present healthy trade surplus with America would be worsened under one scenario conceived by the Department for International Trade (a graphic on page 32 helpfully sets out all these starkly grim statistics). Jobs will be lost in agriculture, food, communications and the wholesale and retail trades: and younger workers will suffer disproportionately.

For all this government’s reputation for mendacity, it has produced an almost naively candid document on future trade with America that, with only a little scrutiny, reveals how little chance there is of a mutually advantageous trade deal, even if the talks went swimmingly. As it stands, Ms Truss’s draft of a UK-US free trade agreement is certainly not going to impress the author of The Art of the Deal, or anyone else.