What’s in it?
The possibility of a UK-US free trade agreement makes regular headlines. To see exactly what the outcome would be and how his compares to the effects of leaving the EU single market, we used an econometric model of trade flows. This allows us to estimate how much trade changes depending on the depth of a free trade agreement between any two countries. By “depth” we mean the scope and extent of goods and services liberalisation, and the extent of regulatory convergence
Potentially big, but not enough.
By virtue of EU membership. The UK is currently part of the deepest free trade agreement currently around. We found that there is no scenario in which a “hard exit” (i.e. reverting to trade with the EU on WTO terms) could be made up for by an agreement with the US.. Even on the most optimistic scenario for the US, losses to the UK from a “hard exit” would be nearly twice those of gains from a deal with the US. We also found that to get big increases in trade with the US, the UK would need to negotiate single market type arrangements in both goods and services with it.
Devil is in the detail
The main issue in negotiating deep arrangements with the US is that remaining barriers in goods and services are largely regulatory in nature. But these are much harder to lower than, say tariffs, because there are sensitive public policy issues involved in everything from food safety to audio-visual services to access to medicines. Reform to these measures involve a cost benefit calculus that goes beyond trade, and certainly beyond the bartering of commitments that we usually see in trade negotiations.