- The Washington Times - Wednesday, July 31, 2019

The U.S. and British commercial relationship dates back hundreds of years, but Mark Herlach, chairman of the British-American Business Association, said he has a new outlook on the partnership: “uncertain.”

Britain is lurching toward a divorce deal with the European Union under new Prime Minister Boris Johnson, and questions over whether and when the U.S. and the United Kingdom can strike a post-Brexit free trade deal leave the man charged with promoting trans-Atlantic trade with more questions than answers.

“Nobody’s sure,” Mr. Herlach said in an interview. “The watchword here is uncertainty. Everyone is concerned with potential fallout, particularly if there’s a ‘hard’ Brexit,” in which Britain crashes out of the EU bloc without a road map.

Still, Mr. Herlach said, life will go on and new arrangements will be found, whatever the short-term turbulence for U.S. companies looking to do business across the pond.

“It’s fair to say that everybody has concerns about Brexit because it has implications in the manner of how people are going to do business,” he said. “But regardless, people are still going to do business.”

Mr. Herlach said companies and investors are not necessarily concerned with a government led by the mercurial Mr. Johnson. These are the same companies that have maneuvered through three prime ministers in four years.

“The thing that’s really driving discussion is Brexit itself,” he said.

President Trump and Mr. Johnson spoke last week after Mr. Johnson’s formal elevation to prime minister. The BBC reported Saturday that Mr. Trump once again touted a “very substantial” trade deal in the works after Britain breaks free from the EU.

“We were actually impeded by their relationship with the European Union. We were very much impeded on trade,” Mr. Trump said. “I think we can do three to four to five times what we’re doing. We’re not doing the kind of trade we could do with Britain.”

Liz Truss, a libertarian who is Mr. Johnson’s international trade secretary, has spoken of negotiating quick trade deals with the U.S. and Australia once Brexit is in the rearview mirror.

Ms. Truss, who met with U.S. Ambassador Woody Johnson this week, told reporters in London, “Negotiating and signing exciting new free trade agreements is my top priority — and none are more important than with the United States.

“We are fast-tracking these deals and making sure British businesses are ready to trade so they can take advantage of the golden opportunities ahead,” she said.

Laying out objectives

The Office of the U.S. Trade Representative has put out a set of trade objectives, including an end to raising tariff and no-tariff barriers to manufactured goods, agriculture and services imposed by the EU.

“As the first and fifth biggest global economies, the U.S. economic relationship with the U.K. is one of the largest and most complex in the world, with annual two-way trade totaling more than $230 billion,” according to the trade representative’s “Summary of Specific Negotiating Objectives” released in February.

“Despite this significant trade volume, multiple tariff and non-tariff barriers have challenged U.S. exporters in key sectors while the U.K. has been a member-state of the EU and therefore a part of the common trade policy of the EU. The U.K.’s decision to leave the EU creates a new opportunity to expand and deepen the U.S.-U.K. trade relationship,” the document notes.

Analysts are skeptical that a trade deal will be attained easily and that Britain and its business community will face some hard choices.

William Reinsch, a trade analyst at the Center for Strategic and International Studies, told The Atlantic that trade negotiations may ask Britain to decouple from substantial economic, financial and investment ties to Europe.

“Trying to negotiate a trade agreement between the U.S. and the United Kingdom means asking the U.K. to decide whether it wants its primary trading partner to be us or Europe,” he said.

According to the U.S. Census Bureau, Britain has been one of the top U.S. 10 trading partners for the past decade and nearly 43,000 companies export to the U.K. In the first five months of this year, two-way trade between the nations amounted to $54.9 billion.

A trade agreement cannot be negotiated before Brexit is complete because the EU has control over trade and negotiations for its members. Mr. Herlach said U.S. businesses are hopeful for a trade agreement that facilitates a strong partnership.

But research from Shayerah Ilias Akhtar, author of a report on Brexit and the prospects of a U.S.-British free trade deal, found considerable “uncertainty over if, when, and to what extent the U.K. will regain control of its national trade policy.”

Britain is the second-largest economy in the EU after Germany, and the EU as a whole is Britain’s No. 1 trading partner. But if trade is outlined by country, then the U.S. would be Britain’s biggest single overseas market.

Shucking the shackles

Not all observers see the coming changes as negative. Mr. Akhtar echoed Mr. Johnson’s argument that Britain will be able to negotiate far more extensive and creative trade deals on its own — particularly with a close, longtime ally like Washington — than it ever could while shackled to the EU.

But for business leaders who crave certainty and clear rules, trying times could lie ahead.

William Hobbs, chief investment officer of Barclays Investment Solutions, told the financial network CNBC recently that the potential impact of a no-deal Brexit is “totally unknown.”

“We don’t think Brexit is the end of days for the U.K. economy, to be honest,” Mr. Hobbs said, “but the U.K.’s economy doesn’t matter that much in the world’s capital markets.”

Mr. Akhtar’s research found that when the British pound fell to a record low after the British referendum in 2016, “doomsday fears” subsided only temporarily. The pound again headed south while Mr. Johnson was settling into No. 10 Downing St.

“Most analyses predict that the U.K. economy faces lower growth in all Brexit scenarios, with a ‘no-deal Brexit’ constraining growth rates the most,” he said.

Mr. Johnson has said his government is bracing the country for the possibility of a no-deal Brexit by the Oct. 31 deadline, amid dire warnings of backlogged customs and border checks, new tariffs on trade with Europe, and the loss of clout that comes with being part of a 28-nation bloc. Banks are concerned “about losing the ability to use their U.K. bases to access EU markets without establishing legally separate subsidiaries,” Mr. Akhtar said.

Kimberly Amadeo, an economic analyst for The Balance, a personal finance advice site, also saw pitfalls for U.S. and other foreign companies that set up in Britain expecting to have an open door to the entire EU market.

“A hard Brexit could be disastrous for The City, the U.K.’s financial center,” she wrote. “Companies would no longer use it as an English-speaking entry into the EU economy.”

London may lose a substantial number of jobs as large financial establishments such as Goldman Sachs, J.P. Morgan and Citigroup shift some work to EU cities such as Amsterdam and Paris.

The most certain aspect of the Brexit future is disruption, at least for the short run.

“Once everyone gets over that hopefully short-term dislocation, it has the potential to be very positive for trade between the U.S. and the U.K.,” Mr. Herlach said.

No matter how Brexit turns out, he said, U.S. businesses will continue to partner with Britain.

“All of us who are committed to U.S.-U.K. business are confident there’s still going to be a strong investment relationship,” he said. “But the mechanics of how that relationship operates are likely to change.”

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