Over the past decade, international trade has become an increasingly contentious political issue in both the United Kingdom and the United States. Departing from a postwar consensus in favour of liberalising trade, both countries have embraced a more ambiguous and complex attitude towards the issue. Neither country has embraced outright protectionism, but both have sought to manage and redirect trade and investment flows. By doing so, they have moved away from an approach to trade which focuses on maximising economic growth and towards one which involves a blend of political and national security considerations.
As both countries approach their next national elections, it is time to take stock of these trends and to consider how they might develop further in the coming years. As a struggle is underway to rewrite the rules of the international economy in regions like the Indo-Pacific, choices taken in Washington and London will have far-reaching impact. At stake are the standards of living, environmental protections, and labour rules affecting billions of people around the world.
The new trade policy
For different reasons, both the UK and the US have moved away from a pure emphasis on economic efficiency in their recent trade policy.
Although supporters often claimed that Brexit was a free trade measure designed to increase the UK’s economic opportunities abroad, its main practical effect has been to make trade between the UK and its largest export market more difficult. This negative effect on trade with the European Union was supposed to be offset by the UK’s ability to negotiate its own free trade agreements with third countries. The results of this were uncertain at the time of Brexit and have mostly proved to be disappointing since. This has particularly been so in the case of a US-UK trade agreement, which many supporters of Brexit touted as a major goal. In effect, Brexit has meant sacrificing a measure of future economic growth in order to “take back control” of other policy areas from Brussels.
Over roughly the same period, the US has also backed away from its past support for a liberalising trade agenda. President Trump famously started a trade war with China and pulled out of the Trans Pacific Partnership (TPP), a sweeping free trade agreement covering much of the Pacific rim. But his successor President Biden has proven to be sceptical of trade as well, imposing new economic sanctions on China, declining to rejoin the TPP, and announcing that expanding market access is no longer a priority of US trade policy.
The result has been the emergence of a new and powerful protectionist coalition in American politics. On one side, it comprises economic nationalists, China hawks, and members of Trump’s Make America Great Again (MAGA) movement, who see trade as weakening the American economy and destroying its manufacturing base. The other side consists firstly of economic progressives who see free trade deals as enriching corporations at the expense of American workers, and secondly of Democrats concerned about winning votes in key industrial Midwestern swing states.
This protectionist coalition reached its ascendancy at precisely the wrong moment for the UK, which since 2016 has been seeking a US-UK trade deal. There has been little to no appetite in Washington for expanding the access that the two countries have to the other’s market, which is the key goal of British policymakers. Limited talks over harmonising regulations and addressing other barriers to trade fizzled out late last year amid concerns among Democrats that even appearing to consider a substantive new trade agreement would harm them in November’s election. Even if there were a political appetite for a deal, long-running disagreements over agricultural standards would make one hard to achieve.
These political dynamics – both the ascendancy of a protectionist coalition in the United States and the specific barriers to a US-UK agreement – are not likely to improve even after this year’s elections. It is possible that, with the election behind it, a second Biden administration might return to talks on a limited agreement dealing mostly with regulation, but talks on expanding market access are unlikely. Trump, meanwhile, is campaigning on increasingly draconian trade policies, including a flat 10% tariff on all imports. His advisors are also reportedly debating whether to purposefully devalue the dollar, which would make British exports to the United States less competitive. These policies could significantly harm US-UK trade and foreclose the possibility of any constructive new agreement.
A whole world of trade
Even with US-UK trade arrangements appearing uncertain, both the UK and the United States are involved in setting and influencing the rules of the international economy further afield.
As it has moved away from traditional free trade agreements, the Biden administration has not completely lacked a trade policy. It has focused instead on more narrow negotiations which have sought to address non-tariff barriers, but also to persuade partners to raise their environmental and labour standards. Its most notable attempt came in the form of the Indo Pacific Economic Framework (IPEF), an agreement covering 12 nations containing 2.6 billion people and over a third of the global economy.
Although these headline figures sound impressive, the results of IPEF have been limited. Last year, the cooperating nations reached minor agreements on coordinating supply chains and sharing knowledge related to the green energy transition. But the Biden administration walked away from the portion of the agreement related to environmental and labour standards, believing that the other IPEF states – which include India, Japan, and Vietnam – were not willing to do enough to satisfy American opinion.
The travails of IPEF revealed the limits of the Biden administration’s approach. Without offering its partners increased access to the US market, the administration gave them little incentive to raise their environmental and labour standards, which would in turn make their products less competitive internationally. But this means that the United States has lost the opportunity to have a strong voice in determining the economic future of the region. This points to there being a strong chance that the initiative will pass to China, which sits at the centre of a growing economic bloc called the Regional Comprehensive Economic Partnership (RCEP) – and which does little to raise environmental protections or standards for workers.
The UK has taken a different approach. In recent years, it has signed several new bilateral free trade agreements in the region – with New Zealand and Australia – and joined the successor to the TPP, known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The UK Government has not taken a formal position on IPEF, but the UK may try to join it in the future. Although the benefits to the British economy are small, these moves have signalled that the UK remains interested in new trade agreements and wants to play an increased geopolitical role in the region. This looks likely to remain the case regardless of the outcome of the next UK general election.
The most contentious international economic issue faced by the two countries in the coming years is likely to be relations with China. Trump has signalled that he is looking to engage in extremely harsh economic policies against China if elected. In this case, the UK will likely find itself caught uncomfortably between Washington and more dovish European countries who want to maintain economic ties with Beijing. Particularly if Trump also engages in new trade measures against European countries – as he did in his first term – it will be extremely difficult for the UK to pursue a liberalising agenda. Instead, the world is likely to be consumed by a new round of trade wars.
More harmonious relations can be expected between a second Biden administration and a government led by the Labour Party, which has voiced support for the “new overseas investment and regulatory partnerships” which are at the centre of the Biden administration’s approach. Ultimately, however, UK policymakers who want to pursue an agenda of liberalisation and integration will be at the mercy of sentiment in Washington. The UK economy is simply not big enough for London to drive the process itself.
A difficult future
Both the UK and the US have identified the Indo-Pacific as a region which is key to the future of global politics and economics. But political reservations in Washington are currently holding both countries back from playing a decisive role in setting the economic rules of the region. The UK’s enthusiasm is not matched by its heft, whereas America’s heft goes to waste without enthusiasm to match.
By working together, the two countries could offer a positive, optimistic vision of the international economy – one which prioritises raising environmental and labour standards as well as boosting economic growth. The aftermath of this year’s elections in both countries will be a critical test of whether this is possible, or whether familiar barriers and animosities will lead to another wave of protectionism.
Andrew Gawthorpe is an expert on US foreign policy and politics at Leiden University and the creator of America Explained, a podcast and newsletter. He was formerly a research fellow at the Harvard Kennedy School, a teaching fellow at the UK Defence Academy, and a civil servant in the Cabinet Office.
To read the full article published by Foreign Policy Centre, click here.