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January 23, 2020

Why the UK will triangulate carefully with the EU and the US

The Times reminds us this morning that the UK has several potential areas of disagreement with the US right now: over the digital tax, over Huawei, over the Iran nuclear deal, and over the negotiation timetable for a trade deal. We noted that Sajid Javid said the UK would negotiate first with the EU, then with the US. Considering that Donald Trump is now keen to get trade deals done with both the EU and the UK by end-October, and that the deadline for the EU/UK negotiations are end-December, we conclude that something has to give here. Either we are going to go well beyond the US elections, or Javid may have to eat his words. 

At the risk of over-gaming this, we were wondering this morning why the UK may want to slow down the US negotiations. There are other indications pointing in the same direction. We heard, for example, that the US trade representative preferred a four-week negotiating cycle for the various sections, while the UK wanted six weeks. 

Here are three possible explanations. The UK fears that a quick trade deal would not be to its advantage, both in terms of its ability to strike a subsequent deal with the EU as well as the quality of the US deal itself. Trump will be in point-scoring mood. He will want to score cheap victories for marginal seats, whereas that pressure will be gone after November. The risk, however, is that a defeat of Trump may put a US trade deal with the UK on a long burner. We recall Barack Obama’s threat to put the UK at the back of the queue.

Another explanation is that Johnson may be seeking closer alignment with the EU than some people anticipate, or at least that he wants to keep that option open. An early US deal may make that harder because it might create facts that could intrude into the negotiations with the EU. 

Johnson has the political freedom to go both ways. It could be the calculation of Downing Street that, having delivered Brexit by the end of next week, Johnson has fulfilled his promise to get Brexit done. Johnson may even negotiate an EU association agreement based on close alignment, very much on the EU's terms. If the EU and the US close a trade deal, the UK may find it to its advantage to piggy-back on that deal rather than strike one of its own.

A third explanation is tactical. The UK government may simply triangulate and keep equidistant relationships, with all options on the table. Expect lots of confusing and conflicting messages.

Our fourth and final explanation is that Javid is simply not in the loop. He may not be in the inner circle of those who decide the UK’s trade strategy.

For now, we are going with number three. We think that Johnson is keeping his options open in terms of the future relationships with both the EU and the US, and trying to keep some balance between both.

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