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Transatlantic trade: where next for the ‘Special Relationship’?

Progress on a UK/US free trade agreement may be slow, but the long-established transatlantic trade corridor remains robust, despite current challenges.

Prospects of a Free Trade Agreement (FTA)

The prospects of a UK/US free trade agreement (FTA) in the wake of Brexit has been the subject of much speculation ever since the UK’s momentous EU referendum vote in 2016.

In reality, strengthening transatlantic trade ties is probably a higher priority in the UK than Stateside, where the most pressing trading pressures lie elsewhere, particularly with China.

While there’s been a marked fall in trade between the two countries, almost certainly due to the global impact of the pandemic and to a lesser extent Brexit, the long-established trading corridor remains strong.

Data from the UK Department for International Trade (DiT) shows trade in goods and services between the two nations totalled £188.1bn in the year to the end of Q1 2021, 17.8% lower than the same period ended Q1 2020. UK exports to the US reached £116.4bn – down 17.7% – while imports from the US to the UK fell 18.1% to £71.8bn.

UK export success is highly sector-dependent, with cars and medicinal/pharmaceutical products, for example, forming roughly 10% each of all US-bound goods.

US perspective

In a positive move, the US recently relaxed import tariffs for five years on certain UK luxury goods, including whiskey, cashmere wool products and machinery, in response to the UK unilaterally suspending some of its own tariffs on US products.

Nevertheless, there’s a perception the Biden administration lacks enthusiasm for an FTA. This should be viewed against the backdrop of the President’s stated view that he would have preferred the UK to remain part of the EU for political and economic reasons. Additionally, some US business leaders are concerned about the UK’s ability to ‘deliver’ due to supply chain and logistics issues, talent shortages and its strained relationship with Europe.

America’s global trade focus is, however, less likely to fall on the EU and UK than on its ongoing trade wars with China and its ability to trade with other Asian countries. A recurrent theme in US global policy is a fear that its superpower rival’s growing economic dominance in the Asia-Pacific region will see the US “left behind”.

President Biden has been driving a ‘Buy American’ campaign, encouraging US companies to onshore supply chains and strengthening existing ‘Buy American’ legislation to encourage public bodies to purchase from US companies.

Heavily reported claims that certain US exports fall below UK standards – like chlorinated chicken – haven’t helped either.

And the June launch of the US/EU Trade and Technical Council designed to expand and deepen investment ties, could leave the UK isolated.

Deal or no-deal?

There are a number of factors potentially countering these trade headwinds for UK exporters.

In the recent Transatlantic Confidence Index published by BritishAmerican Business and Bain & Co, respondents from major US companies active in the UK viewed the health of the US-UK trade corridor favourably, rating it seven out of ten on average.

In addition, certain UK sectors, such as telecoms equipment and pharmaceutical manufacturing, already benefit from Mutual Recognition Agreements (MRAs) guaranteeing that trade won’t be impacted by Brexit.

Furthermore, UK exporters continue to benefit from American consumers’ enduringly positive perception of British products and services.

A recent Barclays global survey of 10,000 customers found US consumers were more positive about UK goods and services than any other Western economy, due to perceptions of quality, innovation, familiarity and a sense of a tradition – and around a third say they will pay a premium for them.

While there’s a view in some quarters that any benefits of a transatlantic FTA are probably marginal and, with some exceptions, more likely to benefit US than UK exporters, ultimately, the US remains the UK’s biggest non-EU trading partner. It accounts for 16.7% of the UK’s total trade and more than a fifth (20.8%) of British exports, according to the DiT.

It’s also worth remembering that, historically, the two countries have been trading successfully for a very long time without a formal FTA.

Negotiating a mutually beneficial FTA is a desirable outcome for both countries, but in the meantime, transatlantic trade appears likely to flourish regardless.

Corporate banking services in the US

At Barclays, we’re proud of our transatlantic support for clients across our Corporate and Investment banking teams. From 2021, we are broadening our corporate banking services in the US. To find out more, please speak with your Relationship Director.

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