By the end of 2017, the United Kingdom might not be a part of the European Union anymore. Aside from the far-reaching implications it could have for the UK itself and the rest of the EU, how would it affect the UK’s ‘special relationship’ with the United States from a trade and investment point of view?
Every day, the 28 member states of the EU and the US trade goods and services worth $2.7 billion at low negotiated import taxes, lower than those imposed on other countries outside these two blocs.
If the UK were to leave the EU, it would remove itself from the current US/EU trade framework, not to mention any of the other trade privileges that are due to come out of the Transatlantic Trade and Investment Partnership (TTIP). How would UK/US trade be affected?
Import taxes on British goods to America would almost certainly go up. Would American consumers still want to buy UK goods if they were more expensive? The US is Britain’s second biggest export market for cars for instance, where would it leave an only recently resurging British car industry if buying a Jaguar in the US was at a higher premium than its German, Italian and French competitors?
Could the UK renegotiate a bilateral trade deal with the US, similar to the way Norway and Switzerland achieved with the EU?
The answer to that question was made clear at the end of 2015. The US Trade Representative, Mike Froman, said that the US would not be open to negotiating a free trade agreement with the UK on its own; if the UK were to leave the EU, it would be subject to the same import taxes as any other country outside the US free trade networks, such as China, India or Brazil.
The risk that new trade barriers could arise from a Brexit should not be taken lightly, for the US is the UK’s largest export market, with exports twice that to Germany, it’s second largest. It would put the UK at a serious disadvantage.
As for investment, the US invests in the UK more than double what it invests in South America, the Middle East and Africa combined. Thanks in part to a shared language, similar legal systems and economic policies; American companies have always preferred setting up their first European subsidiary in Britain before accessing other markets in the EU.
Hundreds of US financial institutions chose to set up in the City of London in the 1980s before accessing competing financial centers like Paris and Frankfurt.
Historically, the UK has served as a strategic gateway to the largest, wealthiest and most important foreign market to US multinationals: the European Union. And US businesses have invested billions of dollars into the UK on the premise that the UK would remain part of that market.
Whether those financial institutions and other US subsidiaries will want to stay in the City of London or the UK if the country does decide to leave the EU is a big question, and a question many American chief executives may be reflecting on in the months ahead. While the UK may not always have policies that chime exactly with the US investor wishes, they tend to be much more investor friendly than those produced in Brussels. The loss of the UK’s voice at the Brussels negotiating table could lead to Europe producing more regulation at odds with US investor preferences and, at worse, regulation that could target non EU businesses, such as those based in the UK. Previous attempts to require the clearing of certain Euro denominated financial products to take place in the Eurozone, for example, could resurface. The UK would have less power to stop such regulation savaging the city of London and in turn US businesses involved in such transactions would have to move to the Eurozone if they wanted to keep the business.
What the future outside the EU would look like for the UK, or how it could affect the work we do here at OCO Global, is still unclear. What is clear however, is that on the day of the IN/OUT referendum, British voters may not just be voting on whether to leave their strategic alliances with the European Union, they could be voting to undermine their productive trade and investment alliances with the United States too.
