Why a U.S.-U.K. Trade Deal Could Be Harder Than It Sounds

Theresa May
Britain's Prime Minister Theresa May leaves Number 10 Downing Street in London, Britain January 24, 2017. What would a U.S.-U.K. trade deal look like? Stefan Wermuth/Reuters

Considering some of the fanfare ahead of British Prime Minister Theresa May's visit to the U.S. you might wonder why her country ever bothered with that pesky European Union.

May, who on Friday will become the first foreign leader to meet President Donald Trump after his inauguration, will hold some informal discussions on possible new trading links as part of their meeting, according to reports in the British press.

That could be a precursor to a future U.S.-U.K. bilateral trade deal that anti-EU politicians in Britain would like; since the U.K. voted to leave the European Union in June 2016, those politicians have sought an example of the sort of lucrative relationship Britain could forge outside Europe's clutches.

As May said in a speech to a Republican Party gathering on Thursday: "Such a deal… can demonstrate to those who feel locked out and left behind that free markets, free economies and free trade can deliver the brighter future they need."

But would such a deal really be so beneficial? How long would it take? Here's what you need to know.

Why do the U.K. and the U.S. need a trade deal?

Politically, such a deal would be useful for both sides. "Both Theresa May and Trump very much have an incentive to announce a quick deal," says Marianne Petsinger, a geo-economics fellow in the U.S. and the Americas Programme at the London-based Chatham House think tank.

"For her, it would show…that she can signal to the EU-27 that she is in a strong position to negotiate," Petsinger explains, while for Donald Trump it would negate accusations of isolationism and "signal that he is not against free trade per se," she says.

For Britain particularly, the need for a big win on the global stage is pressing. As a member of the EU and its precursor since 1973, Britain's global trading relationships have largely involved taking part in package deals with the rest of the bloc, and the country has been barred from forming its own bilateral free trade agreements.

Now, with Brexit penciled in for 2019, it needs to go its own way. Firming up the so-called special relationship with the U.S., which has long acted as guarantor of Britain's outsize role in global affairs, would be a good start.

However, that might have consequences for Britain's image elsewhere. In a report on Brexit for the European Policy Center think tank, published Wednesday, former British Member of the European Parliament (MEP) Andrew Duff said that the visit "reinforces the sense that the Anglo-Saxons are no longer part of Western Europe's post-War liberal consensus." Europe will be "watching with concern," he warns.

Read more: Donald Trump's first global trade flashpoints as President

When could it happen?

The U.K. can't formally negotiate a trade deal until it leaves the EU, currently scheduled to happen in 2019.

Before that, though, it can engage in informal discussions about trade. As a spokesperson for the European Commission in Brussels tells Newsweek : "You can read the menu, but you can't order the food."

It's impossible to define exactly where the line between formal and informal lies, the spokesperson says, but the Commission is relaxed about the level of engagement going on between Britain and America right now.

In theory, that means such a deal could follow quite quickly after Brexit, with some of the groundwork already complete.

The Trump administration has so far indicated it is pushing for a quick turnaround, with Ted Malloch , tipped to be Donald Trump's ambassador to the European Union, telling the BBC Britain could bypass "the bureaucrats in Brussels" and get a deal done in 90 days.

But many observers are skeptical. "It's a good thing that Americans are prepared to deal with us," says Nigel Sheinwald, who served as the U.K.'s ambassador to Washington until 2012, but "this can't be negotiated at their first meeting, [or] in the first couple of years, it can only be negotiated after we leave."

Apart from anything else, Britain's negotiating capacity is limited.

The U.K.'s new Department for International Trade (DIT) was only set up in the late summer of 2016. Oliver Ilott, a senior researcher at the Institute for Government think tank, says DIT has been hiring people "impressively quickly," but it is not in any position to start work on a serious new deal: "There isn't a crack team ready to get going on a U.S.-U.K. deal."

That might be why officials from the department are keen to play down expectations about the speed of a deal when briefing Newsweek for this article. The U.S. is not included on a list of the seven countries that the DIT has established working groups to explore future trade arrangements with; it is looking into removing barriers with Australia, New Zealand, Norway, India, the Gulf Coperation Council (GCC), Korea and China.

America, meanwhile, has decades of experience playing hardball with would-be trading partners. "They've got a cadre of experienced negotiators who have worked on trade deals for decades," says Sheinwald.

"In the history of U.K.-U.S. relations," he continues, "however special it's been, however close it's been, on economic issues the Americans are always very, very tough negotiators. And that goes back to the period after the second world war… where the Americans extracted quite a harsh price on issues like the loans the U.K. needed at that stage."

Britain's Prime Minister Theresa May leaves Number 10 Downing Street in London, U.K., January 24. May traveled to the U.S. for a two-day visit with President Donald Trump and Republican leaders on Thursday. Stefan Wermuth/Reuters

What are the main obstacles to a deal?

The EU, says Ilott, has a big advantage in trade negotiations.

It often needs to get sign-off on deals from the various national parliaments of its members, meaning it is known for being very unwieldy and complex to negotiate with. The long-planned Comprehensive Economic and Trade Agreement (CETA) with Canada was almost stopped after seven years of negotiations due to concerns of Belgian farmers—and the deal, though signed in October has yet to be ratified by the European Parliament.

While that unwieldiness could look like a disadvantage, it can actually work as a strength. "[The EU] goes into negotiations and it says; this is the deal that I can do; the deal that I can get signed off by all these difficult veto players, and I can't budge," Ilott says.

The U.K., meanwhile, will be in a comparatively weak position after Brexit, desperate for new friendships—and negotiating partners could look to take advantage. "There's a risk that [May] goes into the U.S. negotiations thinking that a bad deal is better than no deal," says Ilott.

And it could prove especially difficult when the U.K. is working with a president whose explicit intent is to negotiate "America first" relationships that benefit his country above all others.

There's also a question of which sectors a U.S.-U.K. deal would significantly boost. The U.S. and the U.K. already have a fairly extensive trading relationships, with low tariffs on most categories of goods, says Ilott.

The exception is agriculture, where tariffs are high. But that, says Ilott, is "the most politically sensitive of areas." Expecting significant concessions from British or American farmers may be overly optimistic in a short space of time.

There are still significant prizes to win for a U.S.-U.K. deal, in theory. So-called non-tariff barriers (mismatches in regulations between countries that make trade harder) certainly make trade expensive.

For example, in the motor industry, when the U.S. exports cars to the EU (including, at the moment, the U.K.), those exports officially only have a 10 percent tariff, but regulatory barriers add an effective 17 percent tariff on top of that, Ilott says.

Regulatory differences were at the core of European objections to the Transatlantic Trade and Investment Partnership (TTIP), a U.S.-EU trade deal the Obama administration worked on, a version of which had been in the making since at least the mid 2000s. That deal has effectively been put on ice since the election of Donald Trump.

However, the concerns in Europe about everything from what chemicals would be allowed in their food to how public health services would be treated under the deal demonstrated that regulations can have emotional and political significance that governments cannot ignore.

What could be key to ensuring a bilateral deal is whether the U.K. will be more flexible than the EU was over regulatory hurdles. However, any such deal would still be at least several years off. There's no reason the U.S. and the U.K. couldn't negotiate a decent trade deal some day. But completing one that is not only swift but mutually beneficial and genuinely comprehensive seems like a long shot.