America’s old trade alliances are breaking down. NAFTA is being renegotiated, and might even exclude Canada. The successful Korea–U.S. deal has also been redone. We withdrew from the Trans-Pacific Partnership before its terms took effect. The attempt to create a Transatlantic Trade and Investment Partnership ended with the Obama presidency, and a trade war with Europe has been averted only by a vague truce with promises of more talks. Yet President Trump openly embraces the idea of zero tariffs and trade barriers. How can we get there from here?
The answer may be right in front of us; when Britain leaves the European Union at the end of March next year, we will have a once in a generation opportunity to construct a new form of trade deal. That is why CEI and a group of American and British free-market think tanks have partnered with Daniel Hannan’s Initiative for Free Trade in its project to produce a draft “ideal” U.S.–U.K. free-trade agreement. The text of the draft document is being released at simultaneous events today in Washington and London.
A trade deal with the U.K. would be popular in both countries. According to a recent opinion poll by British firm Public First conducted on both sides of the Atlantic, 67 percent of British respondents and 64 percent of Americans would support a free-trade agreement between the two countries. Fewer than 10 percent of respondents in both countries opposed the idea of a free-trade deal.
The poll also revealed no major concerns in either country about a deal. Perhaps amusingly to American eyes, 15 percent of British respondents were worried about “reduced food standards” (this is likely in response to scare stories in the British press about American chlorinated chicken). No concern registered over 10 percent among American respondents.
This means that the negotiators will have a much freer hand in reaching a deal than in the case of, say, the renegotiation of U.S.–Mexico trade terms in the NAFTA talks, where there have been particular concerns about Mexico having lax labor and environmental standards. Britain and the U.S., by contrast, have broadly similar standards, paying high wages and requiring strict adherence to environmental regulation. This means that there is no need for these non-trade-related issues to be included in the trade talks. That will shorten the length of any trade deal considerably.
As tariffs between the two countries are already very low, the trade deal will have little work to do in further reducing the remaining tariffs (many of which are imposed by the EU’s common external tariff, which is particularly high for agricultural goods and cars). Trade in services between the two countries can be expedited by specific service agreements, such as one on financial services, which will be very important in providing new sources of access to capital for U.S. businesses and consumers, given the strength of the U.K.’s financial services sector.
Moreover, as already noted, the two countries have very similar regulatory standards. This means that the trade agreement can proceed on the basis of mutual recognition. In a mutual recognition agreement, each party recognizes that the outcomes of the regulatory system of the other party are equivalent, and therefore allows the sale of goods or services under either regulatory system within its jurisdiction. Indeed, mutual recognition can result in regulatory competition, providing better options for regulated businesses and consumers.
Mutual recognition on such a scale would be a revolutionary step in trade agreements. These have generally centered around regulatory harmonization rather than competition, attempting to reach detailed compromises between very different regulatory systems that have the effect of ossifying regulations. A deal based around mutual recognition will provide a different model for trade deals.
To provide greater value, the U.S.–U.K. deal should therefore be negotiated with an accession clause, allowing more countries to join under the same terms. This is likely to prove attractive to Canada, Australia, and New Zealand, but also to countries such as Iceland and Norway, and perhaps Chile and other members of the Trans-Pacific Partnership. As such, it could form the kernel of a new Global Free Trade Alliance. That holds the potential to transform world trade very much for the better.
Long-standing readers of my Corner posts might notice that the core of such a trade arrangement would probably be the Anglosphere. If we value the cultural Anglosphere and the defense Anglosphere, it makes only sense that we use trade agreements to cement an economic Anglosphere. That is particularly the case when Britain is at last freeing itself from the regulatory Bonapartism of the European Union. A trade agreement that allows others to accede is a way to spread Anglosphere values of free trade, the rule of law, and the institutions of liberty.
My colleagues at the Centre for Policy Studies in the U.K. have an excellent summary of the draft agreement here.