January 25, 2017 / 3:55 PM / 2 years ago

Trump can teach May about the art of the deal

Britain's Prime Minister Theresa May leaves Number 10 Downing Street in London, Britain January 24, 2017. REUTERS/Stefan Wermuth

LONDON (Reuters Breakingviews) - Theresa May’s encounter with Donald Trump on Friday is a moment of truth for post-Brexit UK. If UK and U.S. leaders agree to open up $203 billion of annual trade it would be a positive - for their economies and for Britain’s divorce proceedings with the European Union. The cost is modest nose-holding, and a willingness to settle for fast and flaunt-worthy, rather than deep and comprehensive.

Trade deals get harder as products and countries multiply. An Anglo-American accord sounds easier to achieve than a European equivalent, which would reflect 29 agendas. Take almonds. Britain barely grows them but America does, so there’s a mutual interest in dropping tariffs, which start at 3.5 percent. Negotiate in a bloc that includes Spain, which produces the nuts in abundance, and things get complicated. Imagine that repeated for thousands more goods and services.

If Trump and May choose the simplest kind of trade alliance, dropping tariffs on goods, the effect would be small - total levies are only around 0.5 percent on what Britain exports. More important is a reduction in processes, regulations and the like. May might struggle to seal a trade deal that removes those, and includes financial services, where Britain runs a 9.4 billion pound annual surplus with the United States. The Americans might insist on U.S. companies being able to sue the UK government. This kind of deep pact could take many years.

Deals can be refined and expanded later. And a reason to favour something quick isn’t to benefit the winners, but create a loser: Europe. A 2013 study by Germany’s Ifo Institute and Bertelsmann suggested the now-shelved Transatlantic Trade and Investment Partnership would have boosted Britain’s trade with America by over 60 percent - but cut its trade with Germany, Spain, France and Italy by around 40 percent. A bilateral UK-U.S. alliance would create some ill effects for continental Europe without the benefits.

At the least, the threat of a half-decent Anglo-American trade pact should get European countries to engage the UK with a sense of urgency. For Trump, who doesn’t really need such a deal, it would give a quick win. May, as the junior partner, would have to take what she was given, making it far inferior to the European single market. But as that is no longer an option, friends must be found where they can.


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