Boris Johnson achieved what he promised, now his Brexit formula is nothing but Americanization of the UK market in disguise.
After 4 years of endless debates since the 2016 Brexit referendum, the UK has finally succeeded in accomplishing their long-awaited dream. Today, the UK exited the EU (European Union), one of the largest trading blocs in the world.
Many experts call Brexit a cataclysmic event leading to an opaque path for both the UK and the EU.
Many experts call it a cataclysmic event leading to an opaque path for both the UK and the EU which might be heading towards benefitting other powers too. The next thing vital for many businesses is an outlook towards improving global trade relations.
The UK has now entered in an 11-month transition period where the UK political leaders will tend to strike new deals with their strategic economic partners. However, it is a crucial time for the PM Boris Johnson. Any failure would lead to a more catastrophic halt for the UK’s economy.
Johnson’s American Relief from Brexit
The EU is currently a hub for almost 1/6th of the UK’s exports. Johnson said his government wants room to negotiate new trade deals, especially with other global economic powers like the US. Indeed, the UK negotiating team is working day and night to sign new agreements.
Johnson government wants room to negotiate new trade deals, especially with global economic powers like the US.
Kim Darroch (former UK Ambassador to the US) told the Guardian that since last 40 years the UK had not done trade negotiations. It hasn’t yet published its negotiating objectives with the US because the country has not had the bandwidth to work it out.
Why the UK is trying to Negotiate Deals with the US?
In 2018, the UK was the 5th largest export market for the US. It amounted to $66 billion in goods. Comparing from 2017 total export of goods, there was an increase of $10 billion (17.7%). The exports included aircraft, precious stones and metals, fuels, machines, and more. While the US also exported $75 billion in services, it was a 7.6% increase comparing 2017.
In 2017, the US’ total FDI (Foreign Direct Investment) in the UK was over $747 billion, especially in manufacturing, IT, finance and insurance sector. In short, the US is like a lifeline for the UK as it stands to be the largest trading partner country.
How cutting away from EU helps US-UK relations?
The EU’s massive regulatory measures have strangled Britain’s economy. That hampered trade with the US too, significantly in financial services, motor vehicles, telecommunications, and professional services. The US farm products are facing an 11% tariff on an average.
POTUS Trump promised the UK a “phenomenal trade deal” after the Brexit.
However, Trump even promised the UK a “phenomenal trade deal” after the Brexit. That could be a possible ground behind the UK’s cataclysmic bifurcation from the world’s biggest trade bloc. As per the UK government estimation, now for over 15 years, Brexit would lower down the UK’s growth by 6.7%. After the Brexit referendum initiated, the UK has witnessed a slow growth from 2.4% to approximately around 1.2%-1.5%.
How Brexit became a win-win situation for the US?
Trade deals, in fact, are intrinsically complex and sometimes volatile in nature. Donald Trump’s America first policy has inflicted trade and tariff disputes with China and the EU also because of America’s trade deficit with them. These are the countries that became a bugbear for Trump government.
However, the US enjoys a trade surplus with the UK. In 2018, it was $19.9 billion, which saved the UK from Trump’s indignation. In 2018, the US total export was $141.1 billion against the $121.2 billion of imports from the UK in goods and services.
Now, the UK is also trying to sign FTA (Free Trade Agreement) with the US and the EU which always used a stifling hand against foreign goods. EU is also persuading and negotiating new FTAs with the US. Transatlantic Trade and Investment Partnership (TTIP) is a trade agreement between the US and the EU which is in talks.
Brexit is the holy grail of trade for the US. The overdependence of the UK on the American government has placed it on the back foot when it will come to trade negotiations. Boris Johnson’s Brexit will fuel further Americanization of its import landscape. Britain’s economy is heavily dependent on foreign trade. Britain’s annual exports account to be 28%-30% of all economic activity.
What the US wants from the UK?
The US already had a surplus with the UK. So, the new trade agreements will ask the UK a lot in return. And the biggest setback will be for Britain’s Agriculture and Universal health care system, where the US has kept an eye for many decades. The UK’s National Health Service (NHS) is a state-owned universal health care system.
Trump in June 2019, told reporters that UK’s NHS could be on the table for future trade deals between the UK and US. There is a free entry in the UK’s pharmaceuticals market, but still, the prices are regulated by the UK government. The US government will demand to change the rule, which could increase the prices of the medicines in Britain.
The US will also force hard to open the UK market for US agriculture products; chicken products, i.e. washed with chlorine and beef products, i.e. treated with hormones. These products are of low food standards.
Opportunities for Americanization
Finally, America’s economic manoeuvred intrigue has been fulfilled, where through low food standards, the people in the UK will suffer and drastically will purchase expensive US medicines generating revenues for the US companies. And is the UK government resists these demands particularly in agricultural, food and pharmaceuticals products then it will be tough to get comprehensive FTA signed.
There is another unprecedented scenario, particularly for American students studying in the UK which counts over 40,000. However, almost 1,30,000 European students are studying in the UK and enjoying reduced British tuition rates. But after this Brexit, these European students could lose it. And preferably it will benefit the American students who are looking to take advantage of reduced British tuition rates as the UK remains to be the top destination for studies. All these factors point to the gradual Americanization of the UK even as Boris Johnson claims Brexit to be a historic victory.