Amid fears of global trade war, a UK-US free trade deal would be a win-win for both nations

[LONDON] With Donald Trump set to return to the White House for a second term in January, political and business leaders are weighing the possibility of the UK and US agreeing on a bilateral trade deal during the Trump administration.

Stephen Moore, a senior economic adviser to the 78-year-old Trump, said recently that if the UK was willing to embrace the US model of “economic freedom”, this could open the door for negotiations on a trade deal to take place.

Former World Trade Organization chief Pascal Lamy, however, thinks that the UK should align itself with the European Union over economic and trade policies rather than a US led by Trump.

Lamy pointed to latest figures which showed that the trade relationship between the UK and Europe was three times larger than between the UK and the US.

Business executives in the UK want British Prime Minister Keir Starmer and his government to step up its diplomacy efforts with the incoming Trump administration, in order to avoid a full-scale transatlantic trade war.

Their comments come amid mounting concerns over the recent UK Budget presented by Chancellor of the Exchequer Rachel Reeves on Oct 30, where she announced she would raise taxes by £40 billion (S$67.8 billion) – the largest tax increases in three decades.

Independent surveys by the Confederation of British Industry and the UK Institute of Directors have found that executives at two-thirds of companies in the UK were unhappy with the Budget.

Many chief executives and directors felt that Reeves’ measures would invariably lead to higher costs and unemployment. They also expressed worry that economic and business growth would decline further if Trump raises tariffs against the UK and the EU.

Estimates by Nicolo Tamberi, an economist at the University of Sussex’s Centre for Inclusive Trade Policy, indicated that the UK could face a £22 billion hit to its exports if Trump imposes a 20 per cent tariff.

The US is the UK’s largest single-nation trading partner today, followed by Germany and the Netherlands. The US accounted for 18 per cent of the UK’s total trade and 22 per cent of the UK’s exports in 2023, official government data showed.

Excluding the volatile gold trade, the UK’s goods and services exports to the US more than doubled from £93 billion in 2014 to £187 billion in 2023. In contrast to trade deficits with the EU, the data showed that the UK had consistently achieved a trade surplus with the US.

The US is also the biggest foreign investor in the UK. In the 10-year period to 2022, the stock of US direct inward investment soared from £218 billion to £703 billion.

Before he won the presidency on Nov 5, Trump proposed a blanket tariff of at least 10 per cent on all imports into the US. He also called for further retaliatory tariffs against countries that place tariffs on US imports.

One person who could help to smoothen the relationship between the UK and Washington is Peter Mandelson, the front runner to be the new British ambassador to the US.

Mandelson was the European commissioner for trade between 2005 and 2008, and served as secretary of state for trade and industry under former prime minister Tony Blair.

While Mandelson is known to be anti-Brexit and a supporter of greater cooperation with China, he has also spoken up about the merits of a UK-US free trade agreement that would benefit both countries.

Kemi Badenoch, the new Conservative opposition leader, is among those who agree with Mandelson. She recently said that the time was right for a trade accord with Washington, and suggested that it was not in the UK’s interest to retaliate if the Trump administration imposes tariffs on European goods.

“I challenge Keir Starmer to get moving on a UK-US free trade deal,” said Badenoch, a former secretary of state for business and trade, in an opinion piece published in The Telegraph newspaper. “If Trump does pursue a new protectionist tariff regime, it would be terrible news for the UK. Only a free trade agreement will protect us.”

She noted that in 2020, towards the end of Trump’s first term in office, the UK government at the time worked with the US to draw up a blueprint for this landmark agreement. US President Joe Biden, however, put the deal aside shortly after he took office in January 2021.

This means there is already the early text of an agreement “on the shelf, ready to be dusted off” when Trump is inaugurated in January, she said.