US message to UK: small steps to start

US message to UK: small steps to start

John Bolton, the hawkish White House national security adviser, is not particularly known for his interest in matters of trade or economics.

But this week in London, Mr Bolton was keen to get the message across to UK prime minister Boris Johnson and his top officials that US president Donald Trump was prepared to move quickly to strike a trade agreement with Britain after it leaves the EU.

Mr Bolton delivered the news with a twist. This did not have to be a sweeping trade agreement, but could come in a smaller, piecemeal form, at least initially. 

“The ultimate end result is a comprehensive trade agreement covering all trading goods and services,” Mr Bolton told reporters. “But to get to that you could do it sector by sector, and you can do it in a modular fashion. In other words, you can carve out some areas where it might be possible to reach a bilateral agreement very quickly, very straightforwardly.” 

It is unclear whether the UK will embrace the notion of a sectoral approach to trade liberalisation with the US, but in Washington the appeal of more limited trade deals is rapidly growing. The Trump administration is trying to secure a “mini-deal” with Japan, which would involve some agricultural concessions from Tokyo in exchange for some industrial tariff reductions on the US side. With the EU, a larger agreement including farm goods and automobiles is off the table at the moment: the best the two sides can hope for is a smaller harvest to help build trust.

The push for smaller agreements is probably a reflection of a lesson learnt the hard way by Mr Trump with USMCA, the sweeping deal struck last year with Canada and Mexico to revamp Nafta which is now stuck in a congressional quagmire amid resistance from Democrats.

With USMCA, the Trump administration had no choice but to move forward with a larger package. But the advantage for Mr Trump in smaller accords is that the most sensitive issues can be avoided, while a successful outcome to negotiations can still be celebrated.

The drawback here is that World Trade Organization rules say trade deals need to cover “substantially all” areas of commerce. However, international law is not considered much of an obstacle for the Trump administration, and especially not for Mr Bolton, who loathes any supranational legal constraints on US power and influence.

Trade deals live and die based on how many constituencies stand to benefit from them. With a smaller deal, there will be fewer losers, but also fewer winners willing to praise the outcome.

Salvini’s view on trade poses problem for Brussels

Matteo Salvini’s move to trigger snap elections in Italy has raised wide concerns about the implications for the EU of the far-right League leader being in full control of the government in Rome, rather than the current situation where power is shared with the populist Five Star Movement.

There could also be implications for Brussels’ unity on trade liberalisation. Mr Salvini has embraced Mr Trump’s view of the world, in which economic protection from the ills of globalisation is of paramount concern.

Mr Salvini has been strident in criticising imports of foreign agricultural products into Italy, from Cambodian rice to Canadian wheat. But he also knows that with stagnant domestic demand, many Italian manufacturers — particularly in the northern regions where his support is strongest — are heavily dependent on exports. 

Italy has not been a particularly disruptive force in Brussels on trade. That could change soon.

The number: 0.6 per cent

The hit to US gross domestic product from Mr Trump’s trade wars, according to Goldman Sachs, which downgraded its economic projections at the weekend.

Chart choice

The emerging markets trade balance with China has soared towards surplus as a result of the US-China trade war (CFR)

Further reading

Can the Democrats outflank Trump on trade? (NYT) 

Political risk rises in Argentina (FT)

Businesses are squirming at the next round of tariffs (WSJ)

Bolton says a trade deal with the US could cushion the Brexit blow to the UK (Reuters)

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