MNI POLICY: Virus, Brexit Loom Over New US-UK Trade Talks

By Ryan Hauser

     WASHINGTON (MNI) - The U.S. and U.K. launched trade negotiations Tuesday

but a deal is unlikely before Brexit runs its course, while Covid-19 and China

tensions threaten to further disrupt talks.

     "Regardless of the 'special relationship,' the U.K. cannot expect special

treatment from the U.S. at the negotiating table," said Molly Montgomery, a

former senior advisor for European policy for the U.S. Vice President. "The

negotiations will be an important test for (U.K. Prime Minister Boris) Johnson,

who is attempting a high-wire act few would recommend."

     The only way to reach agreement before the U.S. presidential election is

re-creating the kind of "Phase One" pact the U.S. and China struck, said

Montgomery. That would have to include concessions on both sides, she said. The

two nations earlier this year sparred over a digital tax, and President Donald

Trump has often threatened even close allies with broad tariffs or sought

leverage with levies on autos or steel. 

     "Trade talks cannot be both quick and comprehensive, and Covid-19 has

further compounded an unrealistic negotiation timeline," said Montgomery, now a

vice president at Albright Stonebridge. That kind of smaller deal could provide

political victories for Trump and Johnson, but won't "significantly impact trade

volume," said Montgomery.

     --HEATHCARE, FINANCIAL SERVICES

     The U.K. is likely to settle with the EU "before resolving the most

difficult points" in U.S.-U.K. talks, said Gary Hufbauer, a former senior U.S.

Treasury official working in international trade. The EU takes priority because

it's the U.K.'s biggest trading partner, said Hufbauer, now at the Peterson

Institute for International Economics. "The critical event is wrapping up Brexit

terms before finalizing the U.S.-U.K. deal," he said.

     Healthcare, financial services, and agriculture are issues likely to

dominate renewed bilateral trade talks, said Robert Ward, Director of

Geo-Economics and Strategy at the Institute for International Strategic Studies

in London. Covid-19 will bring acute focus to U.K. sentiment on the National

Health Service as many Britons fear the NHS's stature could be weakened by

private competition from the U.S.

     Financial integration will also likely be an issue, says Hufbauer. The U.K.

wants good access to EU financial markets, he said. The problem is Johnson "may

have to accept 'back-door' restrictions on access by U.S. firms through London

as the price of EU access."

     Covid-19 has also heightened concerns about food security. More generally,

negotiators will do the first round of talks virtually over the next two weeks,

according to a joint statement from USTR chief Robert Lighthizer and U.K. Trade

Secretary Elizabeth Truss. Total two-way trade between the two countries is

worth about USD269 billion a year, and each country is the other's largest

source of foreign direct investment, with USD1 trillion invested in each other's

economies, according to the statement. 

     --CAUGHT IN MIDDLE

     The Trump administration will likely raise issues beyond the normal range,

said Montgomery, and contest the U.K. digital services tax alongside Britain's

apparent increased adoption of Huawei 5G systems. Montgomery said these may not

be "deal-breakers" for the U.S., though they will likely be used as leverage.

     The U.S. "wants to enlist the U.K. in its cold war" against China, said

Hufbauer, and will request a "non-market economy China clause," similar to the

one in the USMCA.  Hufbauer warned, however, that the U.K. "will not want to go

along."

     The problem for the U.K. is being caught between the EU, the U.S., and

China, said Ward. The economic powers all have an interest in trading with and

investing in the U.K., but it's practically impossible for them to all be

satisfied at the same time.

--MNI Washington Bureau; +1 202 371 2121; email: ryan.hauser@marketnews.com

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