So the last shall be first, and the first last

Brexit and the loss of leverage

Keir Starmer made a bit of a fool of himself this week, gushing about Britain’s trade deal with the United States. Starmer spoke as VE Day was being celebrated, and noted that the deal’s announcement came almost to the hour at the same time as Victory in Europe had been announced in 1945. The idea that a fairly narrow, sectoral deal to reduce tariffs in a few areas is comparable to the end of the most destructive war in human history is ridiculous.

But is this deal actually bad? As many have pointed out, quite reasonably, if sucking up to Trump means that thousands of British workers’ jobs are saved, it might be worth doing, even at the risk of making yourself look a bit foolish in comparing Trump to Churchill, or whatever. Does the deal do that?

I’m not a trade expert and defer to others here, but the full details have now come out so we can at least see what’s really in there, as opposed to what Trump or Starmer might claim. The first thing to note is that the so-called announcement of a “deal” appears to be an announcement of a deal to make a deal. To quote from the document: “The United States and United Kingdom are immediately beginning negotiations of the EPD to develop and formalize the proposals made in this document… Both the United States and the United Kingdom recognize that this document does not constitute a legally binding agreement.” When you’re negotiating with Donald Trump, you might hope for something a bit firmer than that, but a proper trade deal in the United States has to be ratified by Congress. Even in the Trump presidency, where the legislature is largely ignored, there isn’t much of a way round this. So this woolly arrangement is what you get if you negotiate with the President, which is what Starmer chose to do.

But there are still some clear priorities for the deal: one of the biggest elements has been around tariffs on steel and aluminium. The 25% tariff on UK exports has been dropped, subject to a quota limit, and that limit is yet to be defined. This is the sort of thing that seems rather important: if that limit is set low, then the tariff avoidance becomes irrelevant. A similar process is in place for cars, a crucial industry that employs 250,000 people in the UK: there the limit has been set at 100,000 cars. Up to this number, UK cars will attract ‘only’ a 10% tariff in the US (this is still higher than the number before Trump imposed his across-the-board ‘reciprocal’ tariffs on ‘Liberation Day’). Above that number, the tariff will be a punishing 27.5%. So, is 100,000 cars a large number? It’s more or less exactly the number exported from the UK to the US last year - putting an effective ceiling on UK exports, leaving little or no room for growth. This is important, since the UK exported over 200,000 cars to the US in 2015 when the industry was at its pre-Brexit height. This a trade deal for a declining economy.

You first… no you go… no, you

The conclusion of the experts is that this agreement is unlikely to shift the overall dial on the UK or US economies - which seems reasonable. But at least the UK was able to get a deal done. Britain and America are leading the world once again was the delusional verdict in the Daily Telegraph, on the thinnest of evidence. Contrary to what former President Barack Obama had suggested would be the case in the light of Brexit, it’s good to be at the front of the queue and not at the back. Or is it? Almost by definition, any trade deal (or to be more accurate in this case, tariff and quota agreement) builds on the agreements already in existence. By being the first country to negotiate an outline tariff reduction agreement with Trump’s administration, it’s almost certain we won’t get the best terms - we have set the baseline for other countries to build on. But equally, post-Brexit, Britain has a pretty weak hand (and definitely isn’t “leading the world”). So this might be about as good as could be hoped for. Indeed, as I learned in a recent podcast episode, our military actions in Yemen may have played into this desire to maintain transatlantic relations in the hope of securing this agreement.

But there’s another reason to be cautious about this: it was clear that Trump needed to announce this agreement to show that his crazy tariff policy was working - forcing countries to come to the negotiating table. So whilst the UK is a small and declining economy compared to the US, it did have some leverage: Trump needed a win and the UK gave it to him. Did we need to do that? And did we do that at the right moment? The US remains uncommitted to European security and, in spite of Putin humiliating Trump with his continued attacks on Ukraine in spite of being offered almost everything in a so-called ‘peace deal’, Trump is still holding back support to Ukraine.

It is not that Britain has a lot of leverage here, but what little we had, we have now given away.