Now that Brexit has become reality, the United Kingdom can use its newfound independence by negotiating an ambitious free trade agreement with the United States.
Such an agreement can deepen commercial ties between two longtime allies, not only in goods trade but also in financial services and the movement of people. Outside the European Union, the United States is one of the UK’s most important commercial partners.
According to the US Commerce Department, in the 12 months through the third quarter of 2019, two-way bilateral trade in goods and services totalled $270bn (£206bn). Services account for more than half of cross-border UK-US trade, with transportation, travel and financial services the top categories.
The United States is also the top direct investor in the United Kingdom. According to the most recent Commerce numbers, US majority-owned affiliates employ 1.5m British workers in the UK, more than twice as many as the nearest EU country, with a total annual payroll of $101bn (£77bn). Of the Brits employed by US affiliates, 372,000 work in manufacturing and another 195,000 in finance, insurance, and banking.
A free trade agreement worthy of the name should, of course, aim for the complete elimination of tariffs on all goods trade. A top priority should be to ensure zero tariffs on trade in agricultural products as well as on all manufactured goods.
The United States should give up its 2.5 per cent duty on imported cars and its 25 per cent duty on imported light trucks, while the UK should jettison the 10 per cent duty on cars it inherited from the EU and the even higher 20 per cent-plus duty on imported trucks. The result will be lower prices and more choice for consumers.
Just as importantly, the agreement must aim for freer trade in services between two of the world’s most competitive providers. In its negotiating objectives released last year, the Office of the US Trade Representative (USTR) pledged that the United States would “secure commitments for the UK to provide fair and open conditions for services trade,” including rules that would prohibit discrimination against foreign suppliers, restrictions on the number of service providers in the market, and requirements that cross-border service suppliers must establish a local presence. The United States should be ready to provide the same access.
On financial services, the USTR calls for US suppliers “to obtain fairer and more open conditions of financial services trade” while ensuring that the UK’s financial regulatory rules are administered in a transparent and equitable manner for US providers.
For its part, the United States should be willing to relax its own restrictions on foreign-supplied financial services. With London and New York City arguably the world’s two most important financial centres, more robust competition in this sector would yield benefits for both nations through lower costs and more product innovation.
On digital trade, negotiators should seek the prohibition of all customs duties on digital products as well as restrictions on cross-border data flows or requirements that servers be localised. The agreement should also preclude any mandates to disclose computing algorithms or source code.
The United States will also seek assurances from the UK that would protect the competitive US digital trade and cloud computing sector from EU-type rules and punitive taxes aimed at US technology companies.
A US-UK trade agreement should also liberalise the movement of people, an important means of delivering services. One idea would be the creation of a special visa, either within the agreement or separately, that would allow the freer movement of professional workers between the two nations.
The visa could be patterned after the E-3 visa that allows as many as 10,500 Australian professionals to work in the United States on two-year visas that are renewable indefinitely. Adjusting for the larger population of the United Kingdom, a proportional number of visas would be about 30,000.
Ideally, a UK-US agreement would be signed and ready for implementation on 1 January 2021, the day the Johnson government plans to finally exit the EU customs union. An 11-month timeline to negotiate the agreement would be aggressive, but not impossible. There is certainly no reason why it could not be negotiated simultaneously with a post-Brexit UK-EU trade agreement.
Politically, the UK-US agreement would allow the Conservative government to deliver on a manifesto promise to strike new deals with major trading partners, while giving it leverage in what will likely be difficult talks with the EU.
Most importantly, it will create opportunities for the people of Great Britain to deepen their commercial ties with their friends and allies on the other side of the Atlantic.
Daniel Griswold is a senior research fellow and co-director of the Trade and Immigration Project and Jack Salmon is a research assistant, both with the Mercatus Center at George Mason University. They are co-authors of the new Mercatus Center briefing paper, “Can a U.S.-U.K. Trade Agreement Become a Reality in 2021?”