UK Trade Policy After Brexit: Are Open Markets Enough?

The new UK government has set out an ambitious agenda for international trade policy. Liam Fox, the Secretary of State for International Trade, aims to achieve free-trade agreements with as many as 12 countries.

The goal is to turn the country into a “beacon for open trade” unshackled by EU regulations by 2019, when Britain expects to leave the European Union. With this ambitious debut, the commercial dimension of what Foreign Secretary Boris Johnson calls “Global Britain” is taking shape.

Aligned with Washington?

There is a natural inclination in Washington to consider favorably the policies that London will pursue as an independent international economic actor.

It is undeniable that the United States has maintained a valuable “special relationship” with the United Kingdom.

That relationship is not just founded upon a common history, culture and language, but at least equally important on a shared role as founder of the now 70-year old liberal international order.

That order is enshrined in the UN, NATO, and the three Bretton Woods institutions – the International Monetary Fund, the World Bank, and the World Trade Organization.

But it is also worth remembering that these close U.S.-UK ties have been sustained over the last several decades by the UK’s membership in the EU.

London has often been able to influence policy deliberations in Brussels so that decisions taken there found greater common ground with U.S. priorities.

Past bonds may only go so far

The United Kingdom will remain an important military and economic actor outside the European Union. But for the United States, it is its partnership with the European Union – a global powerhouse of around 450 million people even without the UK – that matters most.

It is that relationship – even if it is not deemed to be “special” — which offers the hope of crafting a “Bretton Woods 2.0.” Going after that goal is no trivial matter.

Revitalizing the liberal principles of a global economic order is of paramount importance, given the challenges posed by the state-capitalist model pursued by countries like China and Russia.

Washington’s key concern is to secure the long-term objective that the global economy continues to operate according to the rule of law, which has been the basis of the transatlantic relationship.

London needs to play the long game

Viewed in that light, it is not the quantity of trade agreements that the UK is able to negotiate post-Brexit that will matter, but rather their quality.

That is a very important distinction, especially in light of the new British government’s emphasis on its ability to bring home a sizable number of trade deals with partners across the globe, compensating for the diminished link with the EU.

A post-Brexit UK will continue to play an important strategic role if the UK is able to convince its trading partners to accept high standards.

That means, above all, ensuring there are proper constraints on the role of state-owned enterprises and arbitrary state power in the domestic and international economy.

But realizing high-quality agreements may not come that easily for the new British negotiating team in the making, skilled as it is likely to be. The country’s power in the global system as a stand-alone trading nation simply cannot match what could be accomplished as a member of the EU.

Quality, not quantity

If, as the new government’s discourse would suggest, the UK makes “open trade” via tariff elimination and other measures to facilitate market access the main focus of its commercial diplomacy, that approach may create additional economic growth for the UK and the partners to its agreements, but it will provide much less geostrategic benefit.

The future of international trade policy lies at least as much in its rules-creating function – its contribution to international economic order – as in traditional aspects like opening markets.

The new UK government has suggested that Canada, Australia and the United States are all priority countries for its future trade agreements.

But in order for the U.S., the EU and the UK to be successful in updating international economic rules – which have largely remained unchanged since the creation of the World Trade Organization over 20 years ago – they will have to find ways to involve the most important emerging economies in this process.

Leverage Britain’s past constructively

What could aid the UK is that it has strong historical relationships with a number of these countries, such as China, India, and South Africa.

If London can leverage these ties to encourage rising economies to be constructive players in the next phase of global rule-making, then “Global Britain” will be a force for greater international economic stability.

However, given that the BRICS (Brazil, Russia, India, China and South Africa) and a number of other emerging economies like Indonesia are large and sometimes have diverging interests from the transatlantic economies, success in this task is not guaranteed.

Going it alone?

Inescapably, the UK would be most effective as an advocate for advanced global economic principles if it realized that the more closely it coordinates its free-trade agreements, investment treaties and other international economic and financial engagements with its two largest and most like-minded partners, the U.S. and the EU, the more effective it will be.

The UK will soon gain the freedom to chart its own international trade policy, which so many Brexit advocates have yearned for.

What it does with that freedom will matter not only to the UK economy, but also to the broader interests it shares with the United States and the EU.

The UK, like its partners across the Channel and across the Atlantic, ultimately will not thrive in a world of open, but low-standard and weakly governed markets. That would be a global economy that resembles the Wild West of 19th century American folklore.

That kind of world is more likely to benefit illiberal and undemocratic regimes, which are less accountable to their electorates and thus more able to act swiftly and forcefully in their narrow, short-term interest.

Conclusion

The United States can maintain a strong and indeed “special” relationship with Britain after its exit from the European Union.

But for that to be the case, the UK needs to avoid an additional exit from its role as a U.S. (and EU) partner on behalf of global economic order.

In short: Open markets, yes; but only with strategic engagement.