Britain Prepares Itself for Some Donald Trump “Vassalage”

(Bloomberg Opinion) -- Donald Trump has always been a Brexit advocate. The U.S. president celebrated Britain’s 2016 vote to quit the European Union as “a great thing,” and he promised the U.K. a “very substantial” trade deal that would be done “quickly” and “properly.” The biggest holdup has been legal. London can’t formally negotiate its own trade agreements while still a full member of the bloc.

In hindsight, maybe the EU should have just let the Brits get on with it. The trade terms on offer from the White House look like the kind of thing even Brexiters might consider “vassalage” (their catch-all term for any whiff of remaining beholden to Brussels).

In February, the Trump administration cranked out 18 pages of negotiating objectives for a future U.K. trade deal that looked nothing like special treatment (a topic that my colleague Therese Raphael has also explored). In fact, they were almost identical to the aims of the U.S. in their trade talks with the EU.

The Americans want the Brits to abandon both tariffs and regulatory barriers in agricultural goods (think chlorinated chicken), and are asking for full market access for their pharmaceutical and medical products (with the state-run National Health Service footing the bill). They’re also eyeing up changes to the City of London’s financial regulation that would favor Wall Street. As part of the 28-member EU, a market of 500 million consumers, the U.K. would have some leverage to resist. After Brexit, as a market of 70 million, it won’t.

The Trump administration can sense this. Since February’s list of objectives was published, the U.S. has become even more demanding. The wish list is expanding to include all sorts of policy requests that go beyond basic trade – and the friendly chat about negotiating “objectives” has given way to more ominous talk of “preconditions.” Last month the Telegraph newspaper reported that Britain’s hopes for a U.S. trade agreement rested on its attitude toward Huawei Technologies Co Ltd. If the U.K. failed to follow American curbs on doing business with the Chinese telecoms manufacturer, it “could be a deal-breaker.”

Another Washington red line emerged last weekend: Britain wouldn’t get a deal unless it dropped its plans for a tax on tech giants such as Alphabet Inc. and Facebook Inc. Rather awkwardly for Boris Johnson, he defended this 2% levy on revenues during his campaign to become prime minister. The tax is yet to be approved by the British parliament; if it fails to make it into law, Trump’s pressure may be the reason.

All of this has been a concern for the EU. A U.K. pulled into Trump’s orbit would be a problem for the bloc, and not just because of the impact on trade or a race to the bottom on regulations and corporate tax. As well as accounting for 14% of the EU’s GDP, Britain provides 40% of its military power, about 45% of its nuclear capability, and 50% of its veto rights at the UN Security Council, according to Policy Center for the New South, a think tank. That has been another incentive to keep binding the Brits close, and to remind them of their legal obligations on trade policy.

But you have to wonder whether the rules stopping the Brits from negotiating new trade deals have given London too much cover. If U.K. officials had been allowed to start official talks with the U.S., what would they have come back with? Nothing that could realistically offset Brexit, as the former Treasury Secretary Larry Summers said this week. Trade with the EU accounts for about half of Britain’s imports and exports, while the U.S. is closer to 10%-20%. 

And the conditions attached to a Trump deal show Britain probably can’t have it both ways in striking attractive trade deals with the Americans and the Europeans. U.S. pressure for a regulatory and taxation bonfire would mean breaking with the minimum EU standards that govern access to critical parts of the single market. This doesn’t look like a solid basis for a post-Brexit deal with Brussels that satisfies British companies and finance firms.

On the eve of Brexit, “Global Britain” still looks pretty much like a fiction. The U.K. has failed to roll over more than a handful of the trade deals it had as a member of the EU, and if it crashes out without an agreement on Oct. 31, it will lose preferential access to its biggest trading partner. This outcome may be too late to avoid. But the sooner the U.K. is forced to consider what a Trump deal really means for its sovereignty and prosperity, the better.

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Lionel Laurent is a Bloomberg Opinion columnist covering Brussels. He previously worked at Reuters and Forbes.

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