Could a UK-US Trade Agreement Strain Relations with the EU?
In the early hours of Thursday, UK Prime Minister Keir Starmer convened a roundtable meeting with business leaders to explore the ramifications of “Liberation Day”.
He addressed the gathered media, using notably more pointed language than before.
“Last night, the President of the United States took action for his country, which is his mandate. Today, I will take action in Britain’s interests,” he declared with determination.
Following Donald Trump’s announcement of a 10% tariff on the UK, in addition to a 25% tariff on car exports, the atmosphere in Downing Street was reportedly one of “vindication,” since the tariffs were lower than those faced by European counterparts.
Mr. Starmer remarked that morning on having “all options on the table.” A detailed 417-page document of various US goods subject to potential retaliatory tariffs was also released, featuring items ranging from live lambs to Harley-Davidson motorcycles.
Despite the strong rhetoric and threats, there were no signs of immediate action.
In fact, the government stated that it would initiate a “consultation” with business leaders to evaluate the repercussions of any retaliatory measures. This process is expected to last until May 1, and afterward, Downing Street has not indicated whether the UK will be ready to act promptly.
Holding out hope
Alongside this process, efforts to engage with the US will persist, signifying that the UK remains optimistic about reaching a deal.
This approach is supported by former Conservative trade minister, Greg Hands.
He participated in the initial six rounds of trade negotiations with the US administration during Donald Trump’s first term.
Mr. Hands contends that a UK retaliatory response would be a misstep, as such actions presume that the counterpart is a “rational free-trader”.
“When I began negotiating with Robert Lighthizer [former US trade representative], he told me, ‘I’m not a free trader,'” Mr. Hands recalls.
He emphasizes that “we’re still in the realm of hypotheticals,” and it’s premature to predict how the upcoming weeks will unfold.
However, he also believes that there exists a genuine possibility of the EU opting for retaliatory action while the UK secures some form of agreement.
This scenario could serve as a tangible Brexit advantage that Brexiteers could highlight.
The former Tory minister cautions that such an outcome could create significant discrepancies in tariff rates and lead to potential tensions between the UK and the EU.
“Brussels might reasonably ask, hold on, you’re in the UK committed to the global rules-based trading system, yet you’re attempting to carve out your own deal with Trump,” he explains.
Nonetheless, Mr. Hands firmly believes that the UK is justified in pursuing a deal.
This might also trigger complications on the island of Ireland, especially if the EU enacts substantial retaliatory measures.
The UK government has assured Northern Ireland businesses that if they import US goods that are not intended for the EU, they will be eligible for compensation.
Even on a personal consumer level, Mr. Hands points out, there may be repercussions.
“For instance, if the price of Levi Jeans at a Belfast store was 30% cheaper than at a Dublin Levi’s store, could it lead to consumers crossing the border?” he poses.
For now, businesses operating in the UK find themselves in a state of uncertainty.
Jaguar Land-Rover announced over the weekend that it was halting shipments to the US this month to create its “mid to long-term plans”.
The British Irish Chamber of Commerce denounced the US tariffs this week, warning that they would affect 89% of its members throughout the UK and Ireland.
Paul Lynam, its deputy director general, expressed difficulty in understanding the reasoning behind the decision.
“Some of the justifications provided [for the tariffs] are simply absurd,” he remarks, referring to reasons such as VAT and GDPR.
‘Cool heads’
He has called for “cool heads” to evaluate the impact and identify the most effective path forward. He also stresses the significance of maintaining EU unity.
According to Mr. Lynam, Brexit has actually equipped Ireland with essential experience in diversifying into different markets.
Approximately 20% of the chamber’s members have already implemented contingency measures to address the implications of the tariffs.
Nevertheless, businesses across the UK and Ireland would prefer to eliminate such uncertainty.
In the forthcoming weeks, Mr. Starmer’s government will adopt a dual approach, attempting to secure a deal with the US administration while also working to reset relations with the EU.
A special UK-EU summit is scheduled for late May.
Mr. Starmer has consistently asserted that he does not need to choose between the EU and the US. However, attempting to satisfy both parties may prove to be a challenging balancing act.