The reality of the election of Donald J. Trump as President of the United States provides a unique opportunity for the United Kingdom to improve trade, ensure investment and reinvigorate the special relationship with the US to terms more favourable to the British economy.
While many continue to focus on the rhetoric surrounding trade and globalisation during the campaign, in its aftermath the talk from the Trump transition team and its Republican allies in the US Congress has been somewhat more encouraging. Ideas organised around reducing tariffs, not imposing them, and an openness to bilateral trade treaties have been put forward. Here is where both President Trump and Prime Minister Theresa May will find unique political and economic space to address the new realities of the political economies of both nations.
The UK-US economic relationship is a sophisticated exchange of goods, capital and ideas that should provide the framework for a bilateral free trade treaty. The US is the UK’s most important trading partner and imports more than $56 billion in goods. About 20 per cent of all exports to the EU move through the United Kingdom and the US provide about $600 billion per year in direct foreign investment into the domestic economy. In fact, the UK and the US share the largest bilateral foreign direct partnership in the global economy. In 2015 the UK ran a modest trade surplus of $1.9 billion with the US. This is a relationship that demands expansion, not consolidation and turning inward.
The US economy is poised to expand due to a massive fiscal expansion and infrastructure spending during the next three-to-four years. The coming changes in US taxation, defence spending and outlays on modernising America’s ageing infrastructure will provide unique and profitable opportunities for UK exporters in areas such as technology and telecommunications. Easing regulation and deregulation will provide additional opportunities in areas such as energy and bio-pharma, where the UK excels.
The time for a UK-US free trade agreement is rapidly approaching. A bilateral free trade agreement between the two countries presents not only new growth horizons, but is a unique opportunity for the two vibrant middle market segments in both economies. One recent innovation in US trade treaties has been organised around the treatment of small and medium enterprises (SMEs) that has proved quite successful and should provide the foundation for such a treaty.
Such an innovation requires each country to construct an online website that will provide SME’s with access to tailored information to permit full participation and benefit from free trade. The economic logic of this approach is that it would reduce the highly variable costs of exporting that often disproportionately impact middle market firms. The goal is to reduce overly complex paperwork, increase transparency in the regulatory process and eliminate corrupt customs administration, restrictions on data flows and improve logistics to reduce trade costs.
This approach perfectly complements the economics of middle market firms that face barriers to entry in foreign trade, barriers which entail both fixed and variable costs that are microeconomic in origin. The primary concerns of middle market firms revolve around access to information about export opportunities, overcoming non-tariff barriers such as sanitary and technical standards, cumbersome border procedures, constructing delivery systems for delivery to international customers and establishing a network infrastructure for information, communications technology, electricity and water.
The UK and US are bound by cultural and democratic values and, most importantly, bilateral trade and investment. There is no reason in the years ahead the economic relationship shouldn’t grow. In the post-Brexit and Trump era, bilateral issues between Washington and London should be sorted out, and economic interaction, including new trade arrangements, put into place to reflect the new political and economic realities of the time.