U.K. Sails Out of EU's Orbit and Toward America's Embrace

Date : 01/29/2020 @ 10:59AM
Source : Dow Jones News

U.K. Sails Out of EU's Orbit and Toward America's Embrace

By Stephen Fidler 

LONDON -- British governments have struggled since World War II to balance their skepticism and anxieties about European economic and political integration with their worries about excessive strategic dependence on the U.S.

Britain's departure from the European Union on Friday will mark the next stage of that struggle, one likely to push the country deeper into the arms of the U.S. The question for London is what kind of partner the U.S. will be in the age of Donald Trump.

In some areas the two countries' relationship remains without parallel -- particularly in intelligence sharing and in U.S. cooperation over Britain's nuclear deterrent. Yet, rarely in the recent past have there been so many tensions between the two allies.

"I think the relationship with the U.S. is going to be tense and strained," says Harold James, a Princeton University history professor. "The old special relationship I don't think is viable anymore."

After World War II, Britain initially spurned the nascent European project, not having shared the psychological trauma suffered across the rest of Western Europe, where nation states were seen as having failed to uphold norms of decency and humanity.

But the political establishment in London changed its mind as European integration generated economic growth that was leaving Britain behind, and worries grew about dependence on the U.S. following the 1956 Suez debacle, when Washington's opposition forced a humiliating retreat from Egypt by British forces. After two failed attempts, Britain joined the EU in 1973.

Forty-seven years later, Brexit provides an opportunity for the U.S. to pull Britain decisively away from the bloc, which Mr. Trump says was set up to take advantage of the U.S.

The president has promised a "massive" trade deal with the U.K. post-Brexit. Speaking last week, U.S. Treasury Secretary Steven Mnuchin said a trade deal with the U.K. was "at the top of our list."

"It's a big priority," Mr. Mnuchin said. "We hope to get it done this year."

However, bilateral strains are evident across a range of issues and it isn't clear that those tensions can be separated from a trade agreement. Some officials hope the president's good relationship with Prime Minister Boris Johnson will override any obstacles -- but Mr. Trump's unpredictability means that few are confident.

The U.K. is in the administration's sights over its plans to impose a digital tax on technology companies and its decision to use equipment from China's Huawei Technologies Co. in its 5G telecoms network. Mr. Mnuchin said last week he hoped Britain and Italy would suspend their digital taxes.

"If not, they'll find themselves faced with President Trump's tariffs," he said.

British treasury chief Sajid Javid repeated afterward that Britain would put in place its digital tax in April. Nonetheless, the first collection of the tax won't be until April 2021, and there is time before then to secure an international agreement that would include the U.S. and resolve the dispute.

The U.K. is already facing U.S. tariffs over subsidies to the European aircraft maker Airbus SE and could find itself hit by tariffs, for example on cars, in Mr. Trump's trade dispute with the EU, with which it remains associated commercially at least until the end of the year.

Other potential disputes also loom, including a potential carbon border tax. The U.K., like the EU, has committed to turning its economy carbon-neutral by 2050. Peter Mandelson, a former Labour cabinet minister and EU trade commissioner, says the U.K. is likely to join the EU in imposing a carbon border levy to ensure home-produced goods aren't undercut by carbon-intensive ones from abroad.

The EU has said it would propose such a levy next year, and if it is introduced, Mr. Mandelson predicts, the U.K. will follow suit. The U.S. would take that, he says, as "a declaration of war" in the trade arena.

Mr. Johnson has already come under U.S. pressure to fall in line with its hard-line policies toward Iran, but he has so far stuck closer to the position of his EU partners.

Mr. Trump is also taking aim at the World Trade Organization and has neutered its dispute-settlement system just as the U.K. leaves the world's biggest trading bloc and will increasingly depend on the body. Meanwhile, the president has launched unprecedented criticisms of the North Atlantic Treaty Organization that is a critical pillar of U.K. security.

Mr. Johnson also has to strike a balance. Mr. Trump may not be president in a year's time, and he won't want to overcommit to Mr. Trump and damage the relationship with a Democratic successor.

Yet, for many people in Mr. Johnson's party who have campaigned for Brexit, a trade agreement with the U.S. is a great prize.

Mr. Javid said last week that "having a free-trade agreement between the sixth-largest and the largest economy will be good for growth and good for jobs." But he suggested that a broad U.S. deal this year would be difficult to achieve, as the U.K.'s trade relationship with the EU would need to be settled first.

Its symbolic significance would likely outweigh its economic importance, however. British government estimates show that trade deals with Washington and a handful of other countries would add just 0.2% to British gross domestic product.

A significant U.S. deal would inevitably involve the U.K. allowing into the country U.S. food and other products that are illegal in the EU. That would lead the EU to increase its border controls in ways that heighten trade friction, pushing the U.K. further from the EU's economic orbit and giving pro-Brexit lawmakers the looser relationship they have long sought.

Write to Stephen Fidler at stephen.fidler@wsj.com

 

(END) Dow Jones Newswires

January 29, 2020 05:44 ET (10:44 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.


Your Recent History
LSE
GKP
Gulf Keyst..
LSE
QPP
Quindell
FTSE
UKX
FTSE 100
LSE
IOF
Iofina
FX
GBPUSD
UK Sterlin..
Stocks you've viewed will appear in this box, letting you easily return to quotes you've seen previously.

Register now to create your own custom streaming stock watchlist.


NYSE, AMEX, and ASX quotes are delayed by at least 20 minutes.
All other quotes are delayed by at least 15 minutes unless otherwise stated.