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Trump’s UK Trade Pledge Strengthens May As She Plans Brexit

Published on Jan 17 2017 9:45 AM in Supply Chain tagged: Trending Posts / UK / Brexit / trump / Teresa May

Trump’s UK Trade Pledge Strengthens May As She Plans Brexit

Donald Trump’s promise of a speedy U.S.-U.K. trade deal strengthens Prime Minister Theresa May just as she’s preparing to set out her vision for Brexit.

The U.S. president-elect’s pledge helps May by showing her European negotiating partners that the U.K. has a powerful friend who wants Brexit to be a success, and that Britain has alternative markets to trade with. It also adds weight to the argument her government has consistently made, that the U.K. can reinvent itself as a global free-trading nation.

The timing could hardly have been better as May plans to give a major speech on Tuesday on her vision for Brexit. Reports suggest that she will signal a clean break from Europe, stating clearly that the U.K. will leave the single market and the customs union regardless of the economic impact, if this is the price to be paid for regaining control over migration. The pound plunged after the reports, dipping below $1.20 for the first time since October, yet recouped some of losses after the Times of London published the interview with Trump.

“Donald Trump’s signal that a trade agreement will be a priority shows that the U.K. has options beyond the single market -- and that changes the dynamic of the negotiation,” said Stephen Booth, acting director of the Open Europe research institute. That means the negotiations will no longer simply be about “damage limitation” for the U.K., he said.

Talk Tactics

Tactically, the tough talk may make sense: in order to secure a good deal with Europe, May must convince her counterparts she is willing to walk away, which would hurt European economies too. Trump’s offer means May can legitimately argue she’s got the prospect of closer trading ties with America, strengthening British claims that the U.K. doesn’t need the EU as much as the EU needs it. It even raises the possibility that the U.K. could clinch a deal with the U.S. before Europe does.

“Trump’s intervention will certainly embolden the Brexiteers,” Mujtaba Rahman, an analyst at Eurasia Group, said in an e-mail.

Ministers have already started hardening their language on Brexit, warning Europe that it will have the most to lose from a disorderly split. Brexit Secretary David Davis raised the prospect that Europe could “fail” and Chancellor of the Exchequer Philip Hammond promised to do “whatever we have to do” to remain competitive after Brexit, a hint at cuts to tax and labor rules that could lure companies to the U.K. at the expense of the rest of Europe.

‘Easy to tweet’

Still, the question remains whether Trump can make good on his promise, and how soon. According to the Peterson Institute for International Economics, which analysed 20 American trade deals, it takes the U.S. on average more than three-and-a-half years from the start of formal negotiations to get to the implementation stage of a new accord.

“The problem is, it’s easy to tweet about a trade deal,” former U.S. Assistant Secretary of State James Rubin told Sky News. “The devil is in the detail.”

When asked if Britain would be at the front of the queue for a trade deal -- an allusion to outgoing President Barack Obama’s pledge that Brexit Britain would go to the back -- Trump was non-committal. “I think you’re doing great,” is all he said.

In order to strike a fast deal, the U.K. would have to leave the customs union, an integral part of EU membership that allows the tariff-free movement of goods around the bloc and sets common rules for commerce with external countries. While pro-Brexit campaigners tend to favor ditching the customs union before a formal exit, doing so would probably mean burdensome checks for goods crossing the border, and potentially damaging tariffs for U.K. exports to Europe.

That may be a risk not worth taking in light of the relative importance of the U.S. and EU to British exporters. In 2014, the U.S. was the U.K’s second-largest export market after the EU, according to the Office for National Statistics, taking 17 percent of U.K. exports, less than half the 44 percent that went to the EU.

Those details haven’t dimmed the delight of Brexit supporters in Britain, including Michael Gove, the former Cabinet minister and Leave campaigner who conducted the interview with the president-elect and published a smiling, thumbs-up photo of the pair. He said that Trump told him he wanted a new trade deal to be “signature ready” for the day the U.K. formally leaves the EU, expected to be by the end of March 2019.

News by Bloomberg, edited by ESM. To subscribe to ESM: The European Supermarket Magazine, click here.

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