Britain’s future prosperity outside the European Union depends on trade. Donald Trump’s interview with The Times yesterday offers encouragement. Mr Trump promised a quick trade deal with Britain. Theresa May in turn welcomed the president-elect’s commitment.
Mrs May must know, however, that presidential emollience is no short cut to negotiating a new place for Britain in the international trading system. Senior officials in the departments responsible for Brexit are warning against rushing into a trade deal with the United States. They are right and Mrs May should heed them.
The prime minister’s first duty in realising Brexit is to ensure that a trading relationship with the EU remains. Britain’s economy will suffer over the long term without one. And however warm Mr Trump’s anglophilia, such a relationship is beyond his power to achieve. Nor is it likely that free trade agreements with the US and other third parties, even if negotiated rapidly, could compensate for a breach in trade between Britain and the EU.
The government’s public stance has so far amounted mainly to Liam Fox, the international trade secretary, declaring that Britain outside the EU will be a champion of free trade. He says that he is currently “scoping about a dozen free-trade deals outside the EU to be ready for when we leave”. Dr Fox is quite right that while Britain cannot sign and ratify free trade agreements with the US and other third parties until it has left the EU, there is nothing to stop the government from engaging in exploratory talks. What is missing from the government’s position is any indication of what it proposes to give up in order to secure a favourable trade arrangement with the EU.
The answer matters and is one that Mrs May needs to emphasise in her speech today on Brexit strategy. Though Britain runs a wide trade deficit with the EU, this does not mean that it has a negotiating trump card. Britain’s exports to the EU amount to 13 per cent of this country’s GDP. The equivalent figure for EU exports to Britain amounts to just 3 per cent.
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The government should not declare in advance what its negotiating strategy will be, but there are costs to confidentiality. Dr Fox’s “scoping” will be without substance until other governments have some idea of the terms of trade that Britain will have with the EU. Open trade and big reductions in tariffs have been vital in stimulating global growth in the postwar era. Yet multilateral trade liberalisation has barely advanced since the 1990s. Governments have increasingly negotiated bilateral or regional trade agreements. These are valuable but they involve giving up some degree of regulatory sovereignty.
As things stand the government wishes to claim back the sovereign right to control immigration from EU member states, which would require ceasing to be a member of the European single market. That may be politically inevitable, but a trade deal with the EU would still require accepting regulatory harmonisation and a disputes settlements procedure. The same would be true under a free trade deal with the US, Australia or any other partner. The biggest impediments to trade are no longer tariffs but non-tariff barriers, such as regulations or licences.
There is nothing wrong with the aim of negotiating a string of free trade deals, but there is much yet to be discovered about its practicality. EU demand accounts for around 45 per cent of British goods and services, whereas the US accounts for less than 20 per cent. Britain may have the goodwill of Mr Trump but it has little leverage in negotiating with the world’s leading economy. It cannot afford to neglect the task of negotiating a free trade agreement with the EU. Mrs May needs to be clear that it will require concessions as well as hard bargaining to get one.