Hello from Brussels. Another bad week for the wine and spirits industry, the US exporter bit of which is getting whacked with a fresh round of tariffs by the EU — as authorised by the World Trade Organization last month — as punishment for illegal subsidies to Boeing. You have to feel sorry for the winemakers and distillers of Europe and the US, innocent bystanders in an unrelated trade dispute. As regards the consumers, our sympathies are firmly with the Americans. European drinkers face price rises for US vodka and brandy, which is inconvenient; their US counterparts are dinged for drinking single malt Scotch, a serious human rights violation.
Today’s main piece examines why the fractious UK-US political relationship won’t make much difference to a bilateral trade deal, which is improbable for unrelated reasons. Moving to relations between the EU and US, Tall tales of trade looks at how lobsters aren’t really as important as all that, while our chart of the day highlights a record increase in UK economic output.
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Poultry permissions beat postcolonial posturing
So UK politicians and Westminster media have got themselves into one of their favourite and most mortifying tizzies: is Britain still best friends with the US or just an embarrassing ex whom America broke up with in the late 18th century and now can’t get off the phone? Year after year the obsessive neediness from London goes on. Whom does the president-elect Joe Biden call first after an election? What are the precise GPS co-ordinates of the bust of Winston Churchill in the White House? Are the going-home presents after bilateral visits good enough? For our money this is the definitive, pitying, take on the entire sorry phenomenon.
This time round there’s a lot of chatter about the lingering resentment among Democrats at UK prime minister Boris Johnson’s remarks about Barack Obama’s part-Kenyan ancestry, and Westminster media paranoia about whether the Irish-American Biden is somehow bent on vengeance for 800 years of English and British imperial oppression.
Trade Secrets’ interest, naturally, is whether any general friction in the relationship will kill the UK-US bilateral trade deal under negotiation. We’ve previously laid out the big hurdles to getting an agreement done before the expiration of the White House’s trade promotion authority next summer. And to our mind, the process will be dominated by these substantive issues rather than the need to make political gestures in either a positive or negative direction.
Optimists point out that the UK’s security and military co-operation relationship with the US, such as membership of the Five Eyes spy network, will remain intact. It’s hard to imagine Britain stomping off in a fit of postcolonial pique — poking out its Eye to spite its face, you might say — because it didn’t get its way on something else. But that won’t guarantee a trade deal. The geopolitical/security/military bits of foreign policy are located in different parts of the US administration — and often a different branch of government — to the trade bit. Often there is a surprisingly weak connection between the two.
US trade policy has a very strong locus of power on Capitol Hill and is driven by its own hard-nosed interests. The US trade representative negotiates with the chairs of the Senate finance and House ways and means committees metaphorically perched on each shoulder, and they have powerful business and labour union interests perched on theirs.
True, there are one or two key US foreign policy relationships that might override commercial concerns. Unfortunately for the UK, one of them is support for Ireland. A no-deal Brexit and its threat to the Good Friday Agreement would mean no deal with the US.
But even if the GFA is respected, and even if the current Democratic chairman of the ways and means committee, Richard Neal, were not a luminary of the congressional Irish-American caucus, he still wouldn’t take dictation from the UK’s friends in the State department or the National Security Council to get a bilateral trade deal done. If the UK government is serious that it won’t admit chemical-washed chicken (it’s probably rhetorical evasion to be honest), the irritation caused to the US farm lobby would be a bigger blow to a UK-US deal than an offensive remark Johnson might have made a few years ago.
The best example of the disconnect between geopolitics and trade was the Trans-Pacific Partnership in Obama’s second term. TPP was framed by the Obama administration as the trade component of its geopolitical “pivot to Asia”, implicitly designed to push back Chinese influence in the Asia-Pacific by exporting the US economic model.
Taking on China has bipartisan support in Washington. But even before Donald Trump pulled the US out of TPP, it had encountered determined resistance in Congress for workaday commercial lobbying reasons. The tobacco industry opposed a carve-out for their delightful products from investor-state provisions that permit companies to sue governments. Big pharma insisted on more power to keep exclusive access to data used to develop biologic drugs. A struggle for global economic supremacy is one thing, but battling against plain packaging on cigarettes is the real issue. Apparently.
Used to a centralised political system that enables the quick dispensing of favours and the making of deals, British ministers are often slow to grasp that capital in Washington is not necessarily fungible. Recall the painfully deluded belief of Tony Blair as British PM that supporting George W Bush’s Iraq misadventure would gain him credit in Washington he could use to push the US into fixing the Israel-Palestine conflict. (Keen observers will note that Israel-Palestine remains resolutely unfixed.)
Will a US-UK deal get done by next summer? Probably not. But that’s not really because of wounded pride. It’s about commercial substance. US trade policy is a cold-blooded affair only weakly affected by political sentiment. That’s what makes it fun to watch.
The UK economy grew at its fastest pace on record in the third quarter, but the recovery was weaker than that of the US and the eurozone and remains threatened by the latest lockdown restrictions. UK economic output increased 15.5 per cent in the third quarter from the previous three months, the fastest pace since records began in 1955, according to data from the Office for National Statistics.
Tall tales of trade
Today we’re not going after a myth so much as pleading for a bit of perspective. This week, the nano-deal between the EU and US agreed in August, the highlight of which was the EU cutting tariffs on American lobsters, was approved by the trade committee in the European Parliament. In reality it’s of minuscule importance and was probably agreed by the US to help Susan Collins, the Republican Senate candidate in lobster-heavy Maine, in last week’s election. (She won, though to be honest it probably wasn’t the lobsters that did it.)
But to hear some of the rhetoric out of Brussels you’d think they’d just invented the WTO. “It is the first tariff reduction agreement between the EU and the US in more than 20 years,” boasted the centrist Renew Europe grouping in the parliament. “This agreement also affirms the EU’s strong adherence to WTO rules and rules-based trade.”
Steady on. It’s just a few lobsters. It also comes in the week that the EU hit $4bn of imports from the US with duties over Boeing subsidies, so maybe Brussels should moderate the tariff-cutting triumphalism until that problem’s fixed.
Justin Trudeau, Canada’s prime minister, has claimed that Britain is struggling to conclude a trade deal with his country before the Brexit transition ends on January 1 because it does not have “the bandwidth”. Mr Trudeau said Canada was highly experienced at striking trade deals and was ready to conclude an agreement with the UK, rolling over the terms of the existing EU-Canada deal when the transition period ends. “The UK hasn’t had to negotiate trade deals in the past few decades,” Mr Trudeau told the Financial Times. “So there is an issue of not really having the bandwidth within government to move forward on this.”
An Asian trade pact almost a decade in the making is set to reach fruition this weekend with negotiators near agreement on the Regional Comprehensive Economic Partnership. Trade ministers held a video conference on Wednesday to prepare for a Sunday summit of national leaders that may include a virtual signing ceremony. Ministers in Vietnam and Indonesia said they expected a deal.
Positive vaccine developments and Joe Biden’s win in the US election have boosted emerging market currencies and fuelled expectations among analysts for further gains in the weeks to come.
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While a full return to the Trans-Pacific Partnership may be off the table, Joe Biden could take executive action early on to change the tone of US policy toward Chinese tech.
China’s top chipmaker SMIC will cut capital expenditure for the year by almost 12 per cent because of uncertain equipment deliveries from US suppliers due to export restrictions.
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