E Will A UK/US Trade Deal Really Benefit UK?

(By James Harte)

May Makes First Official Visit To Trump

With Theresa May’s visit to the US last week making her the first foreign leader to visit the new President since his inauguration, the prospect of a US/UK trade deal has moved into the spotlight. Trump has previously commented that the UK will be “front of queue” for a Free Trade Agreement and many will be hoping that the UK can strike a deal which will offset loss of access to the Single Market. However, a UK/US trade deal will not necessarily be a straight forward proposition, and the UK might not benefit as much as expected.

US/UK Trade Relationship Not Balance

Firstly, the trade relationship between the UK and the US is not a balanced one. The US accounts for 20% of UK exports whereas the UK only accounts for 5% of US exports. In light of this, the US will have a much stronger position when it comes to negotiating any trade deal.

Despite holding a sizeable overall trade deficit, the UK actually holds a trade surplus with the US, which equals roughly 2% of the gross domestic product. This stands in contrast to the UK’s large trade deficit with the EU which equals around 3% of GDP. The UK has a surplus with the US in both goods and services with the goods accounting for around 0.6% of GDP and services accounting for 1.5% of GDP. Clearly, US demand is an important contributor for the UK’s balance of payments.

Regarding trade deals, it is gross rather than net exports which matter. Market share is a vital factor in calculating the power of each party’s negotiating decision. The US is a second largest export market for the UK while the UK is less important for the US, at seventh place in terms of market share.

US Markets Matters More To UK

Analyzing bilateral trade by sector reveals a similar picture. The US is a much less services-orientated economy, accounting for only 12% of GDP compared with 25% of GDP for the UK. The US is also a much larger market with GDP almost 10 times the size of the UK’s. As such it isn’t surprising that the US is far more important to the UK across a range of sectors.

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Alex Filonov 4 years ago Contributor's comment

There will be no US/UK deal until #Brexit is finished. Until then, UK will stick to EU rules. And Brexit is at least 2 years in the future. And we don't know if it's hard (full split) or soft (remaining in free trade zone) split. In other words, any speculation on US/UK deal is way premature.