The world of trade is usually reserved for the wonkiest of policy wonks. But after Donald Trump’s ‘Liberation Day’ a month ago, this week the UK announced trade deals with India and the US. Against a woeful economic backdrop, this is a serious boon to the Prime Minister. Becoming the first country in the world to agree a deal with the US President is an achievement not to be shirked at. A UK-US deal could chart a path for other agreements with other countries.
Starmer claimed this deal is the national interest. But is it really?
But is this deal as good as Number 10 is claiming? As a former special adviser in the Department for International Trade during the Trump’s first presidency and the Brexit negotiations, here are my top six things to watch out for.
This isn’t the deal that was on the table in previous years
The UK and US have been ‘negotiating’ a trade agreement for a lot longer than since February. Although Keir Starmer and Trump have patted themselves on the back for being the pair to getting an agreement over the line, this is not the deal that was on the table during Trump’s first term in office.
This is not a ‘full and comprehensive’ trade agreement. Its focus is very narrow: removing some of the damage imposed by Trump last month rather than advancing the UK-US interests long term. The UK is still in a worse position than it was before ‘Liberation Day’.
Crucially, it leaves Trump’s 10 per cent tariff in place – aside from on steel, aluminium and Rolls Royce engines. The economic impact of this ‘historic deal’ is likely to be small.
The missing billions
Starmer claimed this deal is the national interest. But is it really? Details are too scant at this stage to be sure, as the announcement came before the text is complete.
What we do know is that White House has announced $5 billion (£3.8 billion) in benefits to the US for exporters under this new deal. The tariffs have been reduced to zero on bioethanol and beef (not the hormone injected variety). The tariff applied to US ethanol imports in the UK varied between 10 per cent and 50 per cent, depending on what is being used for – a considerable saving for some US exporters.
If, as the White House also claimed, the savings on bioethanal and beef exports add up to $1 billion (£750 million), where’s the missing $4 billion (£3 billion)? Something doesn’t add up.
The agriculture wars aren’t over
Agriculture is one of the key sticking points in any trade agreement. The inclusion of beef is symbolic. The US isn’t a big market for UK beef and a reciprocal deal for 13,000 tonnes means both sides can claim a win. But this is a signal that the UK can do a deal with the US that doesn’t lower the UK’s high food standards and force us to stock our supermarket shelves with chlorine-washed chicken and hormone-injected beef – currently illegal in the UK.
Starmer wants us to trust him, allay the concerns of the huge and vocal food and farming lobby and show his backbenches that he can do deals that don’t lower standards. But this move is just the beginning. The US has seen an opening and won’t let this go. If we think the UK’s agricultural lobby is loud, it is nothing compared to that in the US. Standards on SPS (sanitary and phytosantical standards) have been written into this agreement, according to Starmer, but Trump’s ailing polls need to go further for his base of rural voters.
The diplomatic tightrope walk
Starmer will be thanking his lucky stars that he managed to pull some sort of a deal out of the bag before the upcoming UK-EU summit. The PM has invited the great and the good to London to negotiate a ‘better’ deal with the EU than Boris Johnson managed. The UK-US deal proves that we have the international clout to do a deal where others have failed, and one that doesn’t, from what we know at the moment, make too many unpopular concessions.
Rachel Reeves, the Chancellor, had recently suggested relations with the EU were a greater priority than a deal with the US. Expectations now will be high; the pressure will be on. Aligning with US trade practices while maintaining compatibility with EU standards presents a complex challenge. Starmer must carefully manage these relationships to avoid regulatory conflicts that could impede trade flows with either partner.
The plight of UK manufactures
Trump hailed a great deal for the US ethanol producers. From a UK perspective, we don’t yet know what impact this will have on our own bioethanol manufacturers. Whilst there is a win for the UK car industry with tariffs falling to 10 per cent, this is still far above the 2.5 per cent that existed pre ‘Liberation Day’.
More than that, the overall trade landscape eclipses any upside from this deal as tariffs imposed on European nations and China will have knock-on effects in the UK: rising prices and the potential dumping of low-cost products in the UK as cheaper goods locked out of the US try to find a home elsewhere. We are yet to see what continuing high tariffs elsewhere will do to the UK economy longer term and what the impacts might be on product costs, inflation and jobs across our manufacturing sector.
The digital divide
The government says the Digital Services Tax ‘remains unchanged’ as part of this deal. The 2 per cent duty charged on big tech giants at the UK border remains. Yet, with a new, sleeker digital trade deal promised, the danger is not over yet.
The US has been promised a deal that reduces red tape and provides more access to the UK market. Starmer must maintain his red lines on online safety rules and ensure that they are safeguarded in any future deal. That’s too much of a political hot potato. Given the fractious air among Labour MPs, that is one concession the Prime Minister knows he just can’t give up.
The tax only raises around £800 million – predicted to rise to £1.2 billion by the end of the decade – but with the fiscal environment so tight the Chancellor needs every penny she can get. Politically, she also would struggle to sell a £1.2 billion tax cut for big tech alongside the cuts to Winter Fuel Payments that save £1.4 billion.
Starmer said yesterday that he would go ‘further, faster’ in the national interest. But moving any faster on trade deals could be impossible. We’re yet to see what further really means. We should all be concerned about how this framework evolves, if it does, into an actual trade agreement.
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