COMMENTARY: Post-Brexit FTA? Not so fast

Trump expects a quick deal with UK, emblemizing his lack of trade nous

By: Eric Johnson
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   President Donald Trump this past week indicated a desire to move rapidly toward a bilateral agreement with the UK once Great Britain has extricated itself from the EU.
   In his inimitable way, Trump told reporters at the G20 summit in Hamburg that he expected a deal to happen “very, very quickly.”
   Let’s pump the brakes.
   First of all, there is still a long way to go before the UK formally leaves the EU, a process that has come to be known as Brexit. I attended a global trade seminar, organized by SEKO Logistics, outside London in May, and many of the UK-based speakers touched on the sheer administrative hurdles to climb before Brexit actually occurs. And that doesn’t even include the political and diplomatic hurdles.
   Trump and his counterpart, UK Prime Minister Theresa May, are of course free to discuss the parameters of such a deal anytime they like. More realistically, their appointed trade representatives would be the ones to discuss the finer points of a bilateral agreement.
   But there’s a long way to go from here to there, even if the UK was completed with Brexit today. The president’s attitude toward trade is typified in his expectation of a quick resolution to such talks. Even between the strongest of allies – as the United States and UK are – trade deals take a long time. These are negotiations between nations, each with labor and manufacturing sectors to please.

Even between the strongest of allies – as the United States and UK are – trade deals take a long time. These are negotiations between nations, each with labor and manufacturing sectors to please.

   Both the United States and the UK have evolved into service economies, even though the United States is still a massive global force in manufacturing and agriculture. There are bound to be some points of disagreement.
   I’m not trying to be pedantic here – I certainly believe that Trump’s appointed U.S. Trade Representative Michael Lighthizer knows full well how long these trade deals tend to take.
   Trump has had a host of major policy tasks on his desk since inauguration: immigration, health care, tax reform, criminal justice reform. It’s not fair to say those other issues have distracted the administration from its ambitious goals to overhaul nearly every free trade agreement in which the U.S. participates. Every administration juggles a deluge of issues.
   But Trump’s message in riding into the Oval Office was one of reshaping the way these FTAs have, in his words, negatively impacted U.S. workers. The trouble he has found since taking office is that trade deals are really easy to kill and really hard to build.

The trouble Trump has found since taking office is that trade deals are really easy to kill and really hard to build.

   Many trade analysts have posited the theory that, for instance, renegotiation of the North American Free Trade Agreement (NAFTA) will take far longer than anyone in the administration expected, and could produce outcomes not nearly as advantageous to U.S. industries as the administration wants.
   But wait, there’s more.
   When the United States pulled out of the Trans-Pacific Partnership (TPP) the first week of Trump’s presidency, it didn’t kill the TPP. It only killed the TPP that includes the United States. The other 11 signatories to the agreement are reportedly working on a new TPP without the United States. There’s also RCEP, a sweeping trade agreement between the ASEAN nations and all the countries with existing FTAs with the ASEAN bloc. That excludes the United States.
   The administration inherited 20 agreements, either bilateral or regional, international trade attorney Scott Johnston said at the recent American Association of Exporters and Importers annual conference in Austin in June. 
   "Despite what's happening in the U.S. and Brexit, the rest of the world is interested in pursuing FTAs," Johnston said.
   More than just a difference of opinion on the value of multilateral deals, Johnston said there's a distinct lack of clarity on overall trade policy from the administration. That impacts the trade from a strategic perspective, but also from a compliance one.
   "No one has data on what we should be fighting for or against," he said. "I don’t feel the administration itself has all these answers. If nobody has answers about what trade we want to promote and what trade we want to squash, (U.S. Customs and Border Protection) actions around FTA origin, NAFTA verifications, informed compliance visits and the use and enforcement of (anti-dumping and countervailing duties) will be blunt, not targeted."
   Veteran trade expert Bill Reinsch, a distinguished fellow with the Washington, D.C. think tank the Stimson Center, said the biggest problem is missed opportunities.
   “The U.S. will not be a party to these agreements, such as RCEP, or the just-announced EU-Japan agreement, or the 11-member TPP if it takes flight, so the obvious question is why do we care?” he wrote in a July 11 commentary. “The answer is missed opportunities. The EU and Japan appear to have made significant concessions to each other that will boost Japanese auto exports to Europe and EU agricultural exports to Japan, both of them at our expense.
   “For example, the increased pork the EU will be selling the Japanese directly supplants the increased pork we were going to be selling the Japanese if the president had not pulled out of TPP. The Trump Administration will say that doesn’t matter because we are going to negotiate a bilateral agreement with Japan that will get the pork back. Even if we do that, which is highly uncertain, both with respect to that particular concession and even having the negotiation at all, it will be at best a year or more before agreement is reached, more than enough time for the EU to solidify its position in the Japanese marketplace.”
   Politico in May reported on a study being commissioned by the CanadaWest Foundation, a free-trade oriented think tank in Calgary, about the economic benefits of a so-called TPP 11.
   The study said the projected benefits would be less than half of what the full TPP would have produced. For instance, Politico reported, “a TPP deal without the U.S. could still generate 2.43 percent in additional intra-regional exports. The number is two-fifths of the full TPP’s impact. TPP 11 countries stand to gain an additional $16.6 billion at 2017 prices vs. $40.7 billion for the TPP 12.”
   But that may still be enough to compel those nations to progress. The framework of the original deal is still intact, after all.
   This all harkens back to Trump and the collection of advisors he assembled on trade. Most of them took an antagonistic view of trade, and of multilateral agreements in particular, with them to Washington, D.C. Rather than take time to understand the situation and realize that trade agreements, diplomacy, and regional prosperity and security are all hopelessly intertwined, they came in guns blazing with a “new sheriff in town” mentality.
   The problem is that Trump is only the sheriff in the United States, and trade takes at least two, and usually more, to tango. We’re nearly six months into the Trump presidency, and the easy parts have been done. The United States has withdrawn from TPP and announced that it wants to renegotiate NAFTA. The hard part remains – actually convincing other countries to cement bilateral agreements in place of potentially more impactful multilateral or plurilateral ones.
   In the UK and Theresa May, Trump may have a sort of kindred spirit when it comes to this trade mentality. But outside of that relationship, he may find it’s much harder than he ever realized.