A Special Trade Relationship?

Few international partnerships have proved more durable than the special relationship between the United States and the United Kingdom. But recent years have seen the two countries sharply diverge over an issue where they once saw eye to eye: trade. If the U.S.-U.K. relationship is special, it is not so special that Biden administration will make an exception to its wariness of granting broad market access to economic partners, which many of the president’s crucial supporters, such as labor groups and environmentalists, believe has offshored jobs and emissions with little countervailing benefits to ordinary Americans.

Since its vote to leave the European Union in 2016, the United Kingdom has eagerly sought a free trade agreement with the United States. But with the Biden administration skeptical of new free trade agreements, negotiations have not progressed. At the same time, there has been widespread concern in the United States over the U.K. government’s cavalier approach to its post-Brexit dispute with the European Union in Northern Ireland. U.S. House Speaker Nancy Pelosi has said in no uncertain terms that Congress will not support a trade deal with the U.K. if it jeopardizes the Good Friday Agreement and risks the return of a hard border in Ireland.

Much of the divergence appears to be down to contrasting philosophies. For the U.K. government, exiting the EU is an opportunity to deepen its trade relations with the rest of the world. To that end, Westminster has already inked new free trade agreements with Australia and New Zealand and is in trade talks with Canada, India, and Mexico, among others. Beyond these bilateral deals, the U.K. is poised to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. As the global economy recovers from the turmoil of the COVID-19 pandemic and grapples with disruptions caused by Russia’s invasion of Ukraine, the U.K. government sees the negotiation of new free trade agreements as a major part of its economic and geopolitical agenda.

In Washington, the mood is very different. Following the 2016 presidential election, in which both candidates opposed the Trans-Pacific Partnership negotiated by the Obama administration, the free trade orthodoxy that drove U.S. trade policy for decades is no longer ascendant. In its place, Democrats—and some Republicans—have adopted a more judicious approach that views trade as a tool for advancing other interests, such as the workers’ rights and protection of the planet, rather than an end unto itself. During his 2020 campaign, now-U.S. President Joe Biden pledged not to agree to any new trade deals “until we’ve made major investments here at home, in our workers and our communities.” True to this pledge, his administration has moved cautiously in considering whether to roll back the tariffs imposed by the Trump administration on Chinese and European goods and has not pursued traditional free trade agreements predicated on reciprocal market access.

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U.S. Trade Representative Katherine Tai has called free trade agreements a “very 20th-century tool” and has led the Biden administration in developing novel trade arrangements with Asian and European partners. The most prominent of these arrangements, the Indo-Pacific Economic Framework (IPEF) currently being negotiated with a number Asian and Pacific countries, notably does not involve market access but rather a suite of commitments touching on key sectors and standards such as digital governance, supply chains, taxation, and decarbonization.

These differences in outlook mean that a U.S.-U.K. free trade agreement remains highly unlikely. A summit between Tai and U.K. Trade Secretary Anne-Marie Trevelyan earlier this year resulted in a joint statement pledging cooperation around a number of areas of shared interest but no concrete commitments, let alone a path forward to a free trade deal.

But if a free trade agreement is not in the offing, there is still substantial value in the United States and the United Kingdom finding common ground on trade. Although the two governments do not share identical views on the rules and institutions that should govern trade, they nonetheless are strongly aligned on many issues driving the current debate over trade policy in the United States and in many other parts of the world. The climate crisis and the transition to a decarbonized global economy are priorities for both the U.S. and U.K. governments—even if the latter is expected to be a less enthusiastic backer of climate action once Boris Johnson is succeeded as prime minister by fellow Conservative Rishi Sunak or Liz Truss. Both countries likewise share concerns over abusive and exploitative labor practices in global supply chains. And both have identified excessive interdependence with authoritarian economies as a national security risk, as exemplified by their rejection of Chinese telecommunications technology, and more recently their efforts to rid their respective financial systems of the fruits of Russian kleptocracy.

These shared principles, anchored in a long history of geostrategic partnership and common democratic values, provide an important opportunity for a U.S.-U.K. partnership on trade even in the absence of a free trade agreement. One potential model for such a partnership is IPEF: As proposed in a new report by the Institute for Public Policy Research, a progressive U.K. think tank, the United States and the United Kingdom could seek joint commitments around areas of mutual priority—for example, equitable growth, addressing the climate and nature crisis, and supporting democracy and human rights. These commitments would presumptively not be conditioned on or linked to market access but would nonetheless shape the way the United States and United Kingdom engage economically with each other and the wider world.

Such a progressive U.S.-U.K. trade framework would differ from IPEF in one important way: It would be pursued by two countries that sing from the same page on many key policy areas, meaning the commitments under the framework could address issues that IPEF’s large and heterogenous membership could never reach consensus on. These include robust protections against deforestation, forced labor in supply chains, and potentially even a joint approach to World Trade Organization reform and carbon border adjustments. These commitments are likely to have powerful market-shaping and norm-setting power, given the centrality of both the United States and United Kingdom to the global economy and the scale of their trade relationship, which is worth around $270 billion.

A U.S.-U.K. trade alliance need not completely avoid the question of tariff liberalization, however. The Biden administration has signaled it is willing to lift tariffs in very limited circumstances with trusted partners provided such liberalization is pursued in the service of its trade policy priorities, such as empowering workers and protecting the environment. Specifically, last year the United States agreed to lift Trump administration tariffs on European steel in the context of a joint commitment with the EU to decarbonize their respective steel industries and limit market access for steel produced in countries that use carbon-intensive manufacturing methods or are contributing to global oversupply—in other words, China. Under its trade alliance with the United States, the United Kingdom could join the so-called green steel deal and explore similar market access arrangements predicated on greening other carbon-intensive traded goods, for example fertilizer and cement.

Although unlikely to happen soon, a progressive U.S.-U.K. trade alliance of the kind described above could lay the foundation for a more broad-spectrum trade deal in the future. Most opposition to free trade agreements in the United States has arisen out of concerns, shared on both the left and right, that granting market access is undesirable when economies do not share the same standards and values as the United States, leading to offshoring of jobs and carbon emissions and creating critical vulnerabilities and national security risks in supply chains. Were the United States to pursue a multisectoral market access arrangement down the road, it would likely be with bodies that have similar political values, industrial practices, and approaches to economic governance. A U.S.-U.K. trade alliance would bring the two countries, already aligned in values, closer together on concrete standards and commitments.

Amid tumultuous global events, old models of trade liberalization are being replaced with a more hedged approach to economic integration, in which like-minded countries deepen their economic connections even as they continue to trade with competitors and adversaries. Given the historical importance of the U.S.-U.K. relationship in setting up the rules of the global economy, from Bretton Woods to the WTO, it would be a major missed opportunity if the two countries did not seek deeper trade ties as this process unfolds.