BENEFITS OF A U.S.-UK TRADE DEAL

The U.K. and U.S. economies are closely tied in many areas and share many of the same interests. The United States and the United Kingdom are among each other’s strongest commercial partners. With a strong legacy of bilateral trade and investment, both economies can continue to explore mutual areas of growth and development to sustain global economic competitiveness.  

Trade: The United States ran a merchandise trade deficit of $3 billion with the United Kingdom in 2015. The value of US goods exported to the United Kingdom was $56 billion, and the United States purchased $66.5 billion of goods from the United Kingdom. The United States was a net exporter of machinery and transport equipment, miscellaneous manufactured articles, and inedible crude materials to the United Kingdom, while a net importer of chemical products, beverages and tobacco, and mineral fuels from the United Kingdom .

Services: The United States continued to be a net exporter of services to the United Kingdom in 2014. Total exports reached $64 billion and total imports were $50 billion, leading to a bilateral service surplus of $14 billion. The United States ran notable trade surpluses in financial services and intellectual property related services ($9 billion and $6 billion, respectively) and a $3 billion trade deficit with United Kingdom in insurance services .

Foreign Investments: The United Kingdom has been one of major destinations of US foreign direct investment (FDI) as well as a key source of FDI in United States. The US direct investment stock in the United Kingdom was valued at $588 billion in 2014, accounting for 12 percent of US outward FDI stock to the world. About two-thirds of US direct investment in the United Kingdom went to holding companies ($248 billion) and finance and insurance ($152 billion). Meanwhile, direct investment by UK companies in the United States was worth of $449 billion in 2014, representing 15 percent of US total inward FDI stock. UK companies largely invested in the US manufacturing sector ($167 billion)—mainly chemicals—and depository institutions ($60 billion), which accounted for about half of the total stock of US inward FDI from the United Kingdom .

As major investors abroad, as leading recipients of foreign investment, and as the homes (London and New York) of the world’s most important financial centers, both the U.S. and the U.K. have much to gain from promoting investment freedom for the same reason that, as centers of technological and intellectual innovation, they support effective protection of intellectual property.

Despite the generally low level of tariff protection between the U.S. and the U.K., there are significant governmental constraints on trade in several sectors, in some of which the U.K. runs a trade deficit and in which the U.S. and the U.K. have a natural complementarity. In these sectors, an FTA would allow the U.K. to import goods more efficiently, which in turn would benefit U.S. exporters.

A U.S.–U.K. free trade area, if it went beyond eliminating tariffs to addressing areas in which both nations share interests (promoting investment and trade in services and defending intellectual property) and have a natural complementarity (in particular, agriculture and energy), would have real value. It would not revolutionize the economy of either nation, but both parties are well positioned to benefit from reducing existing restrictions on trade and from concluding an agreement that would strengthen their already formidable positions as financial and technological innovators.

A U.S. UK free trade area would align the UK clearly with the U.S. as a nation outside the EU’s regulatory reach. This would not just benefit the U.K. It would also help the U.S. by improving the ability of the most important foreign investor in the United States to continue to serve as both a source of investment and a recipient of it

The beneficial effects of a U.S.–U.K. free trade area would not be limited to its direct economic and financial impact. In the long run, other benefits would likely be even more significant.

Both nations today are far more inclined to support liberalized international trade, partly because of their tradition of limited government and partly because it is clearly in their own economic interests to do so. A U.S.–U.K. free trade area would be a powerful symbol of a shared and renewed Anglo–American commitment to economic freedom in the international realm and, as such, a reassertion of their successful policy after 1945 of promoting growth, both in the West and around the world, by advancing freedom.

Freedom, of course, is a much broader concept than economic freedom, as vital as that form of freedom is to prosperity, growth, and liberty. By the same token, the Anglo–American relationship is much broader than the economic and financial ties between the two nations, as vital as they are. The political leadership necessary to negotiate and, in the U.S., win congressional approval of a U.S.–U.K. free trade area would signal a clear recommitment on the part of both nations to their enduring relationship.

Finally, the negotiation of a U.S.–U.K. free trade area would be an opportunity for the U.S. and Britain to establish their preferred approach for advancing free trade, an approach that should emphasize reducing regulations that impede trade in a way that is compatible with democratic sovereignty. With tariffs in many sectors now low, future free trade agreements will focus increasingly on non-tariff barriers.

.A U.S.–U.K. free trade area would be an opportunity to negotiate an agreement between two advanced industrialized nations with major financial centers. An Anglo–American agreement would adopt an approach of mutual recognition under which each side would agree to accept the standards of the other. A U.S.–U.K. agreement would focus on sectors in which agreement is likely to be easy (including the promotion of investment) and on the major gains that are to be had (for example, in the agricultural sector).

An Anglo–American FTA based on these principles would also establish what both nations would seek to achieve in trade negotiations with other nations. That does not mean that every trade agreement either nation negotiated would need to be a carbon copy of the Anglo–American one. It means that, having committed themselves to a high-quality agreement that promotes economic freedom and respects national sovereignty in the context of the U.S.–U.K. relationship, they would base future negotiations on the same principles.