In the run-up to Brexit, a quick and comprehensive trade deal with the United States was claimed to be an easy way to switch the UK’s trading focus from Europe to the United States, offering many opportunities to offset any downturn in the economy caused by turning away from the EU. This article looks at the difficulties of concluding such a deal, and the alternative approach that has been pursued instead.

One State at a time

Differences between the US and the UK over issues such as digital tax, the position of Northern Ireland after Brexit and increased access for US farm goods to the UK market made a trade deal increasingly unlikely, and when Mr Trump’s replacement as President, Joe Biden, also showed little interest in moving the proposed UK–US trade deal up the political agenda, it became clear that the Government had to change its approach.

MoU or FTA

It therefore decided to move to a policy of opening talks with individual US states, leading, as a first step, to the signing of a Memorandum of Understanding (MoU) with Indiana and North Carolina in May 2022. Since only the US Federal Government can sign trade deals and set tariffs, it should be noted that MoUs are not legally binding and do not replace a Free Trade Agreement (FTA).

However, the UK is the seventh largest export market for Indiana, and it buys $1.4 billion worth of goods from the UK, so there were clearly areas which would benefit both sides and the MoU highlights co-operation opportunities such as:

• identifying market access barriers and taking mutual steps to address barriers to trade
• organising regular economic development missions and public sector visits
• considering matters relating to the interaction between innovation and trade, such as regulatory approaches that facilitate innovation and co-operation to identify and respond to potential and future disruptions to trade caused by innovation in goods and services.

Priority sectors for co-operation were seen as advanced manufacturing and materials, energy, and infrastructure, aerospace and aviation, life sciences, agriculture and agbioscience, automotive (including electric, connected and automated mobility),and low-emissions technology and solutions.

The MoU stated:

“Indiana will actively work towards offering the United Kingdom’s suppliers treatment no less favourable than that afforded to suppliers from a state not bordering Indiana, including state level preferences.”

A slow start

If these MoU deals were meant to compensate for the failure to agree an FTA with the US, the early ones were unlikely to do the job. Indiana, for example, has a population of under seven million, well below that of Greater London, and North and South Carolina, the next in line, only reach 15 million taken together. This was clearly not going to compensate for the 500 million Europeans to which being a member of the EU’s single market had given UK businesses access.

However, the Government persevered with its pursuit of trade deals and by the time it added the seventh, Florida, to the list, it was beginning to build up a more impressive portfolio. Florida has a GDP of over £1.1 trillion — the fourth biggest of any US state and roughly the same size as Spain. The UK said the deal would focus on space, financial technology, artificial intelligence and legal services. The then Business and Trade Secretary, Kemi Badenoch, said: “From launching satellites to developing the latest fintech software, Florida’s leading hi-tech companies offer huge opportunities to the UK’s rapidly expanding tech sector.”

Moving up

Encouraged by the growing economic size of the States coming into the MoU policy, the Government moved on to the second largest US State economy as it signed a Statement of Mutual Cooperation (SMC) with Texas, which had a GDP of £1.9 trillion in 2022 (larger than Italy). The UK is already Texas’ eighth largest international goods export market, with total trade in goods worth £14.7 billion in 2023. The SMC is targeted at sectors where the UK and Texas have shared expertise such as new energy solutions — including hydrogen and carbon capture, utilisation and storage — life sciences and professional business services. Prioritising co-operation on innovative energy solutions such as hydrogen will help the UK to go further in achieving its aim to unlock more than 12,000 jobs and up to £11 billion of investment by 2030 in the hydrogen sector, Ms Badenoch argued.

If Texas were a country in its own right, it would be the seventh largest economy in the world.

Details of all seven MoUs so far signed — Indiana, North and South Carolina, Oklahoma, Utah, Washington State, Florida and Texas — can be found here.

Aiming higher

The then Trade Minister Nusrat Ghani said, after signing the MoU with Washington State, that “each US State is a massive global market in its own right, and many have economies larger than the GDP of whole countries”. Before the election, the Government was looking to add Colorado and Illinois to the collection and then aiming for the largest State economy, California. With a $3944 trillion gross state product (GSP) in 2023, its economy matches that of France.

Has it been worth it?

On the negative side, these are not free trade agreements as explained above: they cannot offer major improvements in trade such as tariff cuts; they are not legally binding; and either side can withdraw from them in a matter of weeks. However, they can offer real help for businesses through recognising UK qualifications and addressing state-level regulatory issues. Deloitte has pointed out that the MoUs may also be useful to help UK firms access large government procurement opportunities. For example, the MoU with North Carolina highlights electric cars as an area of close co-operation, which could eventually help UK companies to tap into the almost $109 million of funding that North Carolina expects to receive from the US National Electric Vehicle Infrastructure (NEVI)​ program.

While there are undoubtedly specific benefits — the motorsports sector welcomed the North Carolina (the home of Nascar) and Indiana (home of the Indy 500) deals, for example — it remains the case that the MoUs taken together were expected to build a case for restarting negotiations on a federal-level free trade agreement. With the possibility of Donald Trump returning to the Presidency in November, the new Government faces a hard road ahead if it is to succeed with this ambition where others have failed.

This article was created and published by Croner-i Ltd – you can view the original article HERE.

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