President Trump was ready to make a deal with Great Britain: His chief negotiator told Congress in October that trade talks could begin as soon after the country’s 2019 departure from the European Union as London wanted.
Reaching an agreement, though, may prove easy compared with putting one into effect. The latter step is likely to happen later rather than sooner.
At the very least, much later than March 29, the official date of Britain’s exit from the economic alliance that U.S. Trade Representative Robert Lighthizer cited in his letter to the House and Senate.
If that’s an unwelcome turn of events for a White House whose current occupant has made trade agreements a linchpin of his global economic policy and possesses an avowed preference for speed over exhaustive deliberation, it’s worse news for Britain.
Leaving the EU, a process known as Brexit, has become an albatross for both the country’s economy and the government of Prime Minister Theresa May, who’s tasked with delivering a grittier and gloomier new reality than was sold to voters by Parliament member Boris Johnson, the former London mayor and foreign secretary, and his allies two years ago.
What global investors think of Britain’s prospects is evidenced in the decline of its currency. The pound is worth 13 percent less today than its $1.47 valuation before the June 23, 2016, vote that rattled both the existing European order and global markets. In the same period, the country’s inflation has shot up — peaking at 3.1 percent in late 2017 — and growth has shrunk.
Britain’s economy is now expanding at the slowest rate of the world’s seven-largest economies, instead of the fastest, Bank of England Gov. Mark Carney observed earlier this year, and its growth potential is about 40 percent lower than before the Brexit vote. Household incomes are 4 percent below what the central bank projected.
None of the trends make the widely-panned withdrawal agreement that May announced in mid-November for leaving the European Union an easier sell.
The proposal was criticized by both so-called Brexiteers, who wanted more favorable terms that the European Union refused, and Remainers, who fear the economic pain as well as the loss of strength and status that may follow the move.
Two members of May’s Cabinet, including her chief Brexit negotiator, Dominick Raab, resigned a day after she announced the tentative deal, and some Tory members called for a vote of no confidence in her leadership — a move that could force new elections if it garners enough support.
“I believe with every fiber of my being that the course I have set out is the right one for our country and all our people,” May said in a news conference after the Cabinet resignations. “Yes, difficult and sometimes uncomfortable decisions have had to be made. I understand fully that there are some who are unhappy with those compromises, but this deal delivers what people voted for, and it is in the national interest.”
The exit proposal, which allows for a so-called transition period through the end of 2020 during which London and Brussels would negotiate future trade arrangements with each other, would let Britain simultaneously strike trade deals with other nations — with the proviso that they not be implemented until the transition ends.
The agreement would remove Britain from the open-borders policy of the EU that allowed free movement between member countries, May said, and end the jurisdiction of the European Court of Justice inside the U.K.
But if the deal delivers what people voted for in 2016, it doesn’t appear to be what they want now, with one poll showing more than half of Brits, about 54 percent, would prefer to remain in the European Union, the chief investment office of DWS, the wealth management business spun off from Deutsche Bank, said in a report.
“While it is debatable whether any other prime minister might have negotiated a deal more favorable to British interests, Mrs. May has done very little to prepare either her party or the country for some harsh realities,” DWS said. “It certainly appears that if the House of Commons were to ratify anything like the draft deal now proposed, the U.K. would lose much of its remaining bargaining power it might once have had in future talks.”
If the agreement is ratified by the parliaments of both Britain and the European Union, Britain’s growth might reaccelerate as much as 60 basis points to about 1.8 percent next year, with business regaining confidence the country can avoid a more-jarring breakup scenario in which it has no deal with Europe, said John Wraith, a strategist with the Swiss lender UBS.
But ratification is not a given, and even if it happens, the respite from Brexit concerns would be brief. Since potentially “irreconcilable differences” over future trade arrangements would be negotiated during the transition period, uncertainty about the outcome would only increase with time, Wraith said.
The result would likely be Britain’s economic growth slowing to 1.3 percent in 2020, exacerbating the fallout from an already weaker performance than that of other major global economies.
“Although the U.K. economy continued to grow throughout 2018, we firmly believe it did so at a slower rate than would have otherwise been the case, due to the headwinds of uncertainty created by the drawn-out Brexit process,” Wraith said.
Fifty years earlier, Britain had engaged in an even more drawn-out campaign to join the alliance’s predecessor, the six-nation European economic community, persisting despite two rebuffs from then-French President Charles de Gaulle. The U.K.’s eventual admission in the early 1970s helped reinvigorate an economy weakened by two world wars and the gradual loss of imperial holdings that had reached their zenith during the reign of Queen Victoria.
Among the thorniest issues negotiators face today is the Irish border. The Republic of Ireland, which covers most of its eponymous island home, is a member of the European Union and plans to remain, while the remainder of the land mass, Northern Ireland, is a part of Great Britain.
If differences over the matter lead to Britain leaving the EU without a deal, its growth would be about 10 percent less by 2023 than before the Brexit vote, Wraith said, though both the central bank and Parliament would curb the effects as much as possible.
Short of that, if May is unable to convince Parliament to pass her agreement, a new election or a second referendum might be held to gauge what British voters want, said Andrew Benito of the investment bank Goldman Sachs. In that case, the European Union would likely be agreeable to extending Britain’s exit date beyond March, though some political and market upheaval would likely follow.
Still, “the Brexit talks are about acting in the national interest — and that means making what I believe to be the right choices, not the easy ones,” May told Parliament in a mid-November speech urging members to back her up.
“Voting against a deal would take us all back to square one: It would mean more uncertainty, more division, and a failure to deliver on the decision of the British people that we should leave,” she said. “If we get behind a deal, we can bring our country back together and seize the opportunities that lie ahead.”
A new trade deal with the U.S. would be among them: Lighthizer and Liam Fox, the U.K.’s international trade minister, formed a working group in July 2017 to explore ways to strengthen Anglo-American commerce and support U.S. businesses operating in Britain during the breakup.
“This work includes laying the groundwork for a future free trade agreement, so that we will be well prepared to begin negotiations once the U.K. has formally exited the European Union,” Lighthizer wrote to Congress. The U.S. and the U.K. are, respectively, the world’s largest and fifth-largest economies, which increases the value of any deal.
Trump himself, meanwhile, assured the prime minister during a July visit to Chequers, her country estate, of American support for Britain’s decisions in the EU negotiations.
“Just make sure we can trade together; that’s all that matters,” the president said. “The U.S. looks forward to finalizing a great bilateral trade agreement with the United Kingdom. This is an incredible opportunity for our two countries, and we will seize it fully.”
