Tuesday, March 03, 2020
Myth of a US trade deal shattered
Judging by their approach to EU trade talks the Tory Government are putting a lot of faith in a deal with Donald Trump's America, however is their confidence misplaced in thinking that such a deal at the expense of our arrangements with the European Union is worth it?
An official document from the Department of International Trade seems to think that there is a great deal of self-delusion on the part of Ministers in pursing this approach.
As the Independent reports, the government's own figures show that the economic benefit from a trade deal with the US may be as little as 0.02 per cent of GDP – around 450 times smaller than the potential loss from a no-deal Brexit.
The paper adds that citics of Boris Johnson's Brexit strategy pointed out that this i only a tiny fraction of the hit to GDP expected in the case EU withdrawal without a trade deal, which the government has previously estimated at up to 9 per cent:
The DIT document set out two “plausible” outcomes from the planned US talks – a more limited deal delivering “substantial” tariff liberalisation and a 25 per cent reduction in non-tariff barriers, and a deeper arrangement with “full” tariff liberalisation and a 50 per cent reduction in non-tariff barriers.
Under the first scenario, DIT put the likely benefit to UK GDP at between £0.5bn and £3.1bn (0.02-0.15 per cent), with a central estimate of £1.6bn (0.07 per cent).
Under the second, UK GDP could increase by £1bn-£7.7bn (0.05-0.36 per cent), with a central estimate of £3.4bn (0.16 per cent of GDP).
By comparison, the government’s most recent estimate of the cost of Brexit to the UK economy, published in 2018, suggested that a Canada-style free trade agreement could hit GDP by between 3.4 and 6.4 per cent, while a no-deal Brexit – referred to by Mr Johnson as an “Australian-style agreement” – would cost the economy between 6.3 and 9 per cent of GDP.
That is a pretty high cliff edge Boris Johnson is driving us towards.
An official document from the Department of International Trade seems to think that there is a great deal of self-delusion on the part of Ministers in pursing this approach.
As the Independent reports, the government's own figures show that the economic benefit from a trade deal with the US may be as little as 0.02 per cent of GDP – around 450 times smaller than the potential loss from a no-deal Brexit.
The paper adds that citics of Boris Johnson's Brexit strategy pointed out that this i only a tiny fraction of the hit to GDP expected in the case EU withdrawal without a trade deal, which the government has previously estimated at up to 9 per cent:
The DIT document set out two “plausible” outcomes from the planned US talks – a more limited deal delivering “substantial” tariff liberalisation and a 25 per cent reduction in non-tariff barriers, and a deeper arrangement with “full” tariff liberalisation and a 50 per cent reduction in non-tariff barriers.
Under the first scenario, DIT put the likely benefit to UK GDP at between £0.5bn and £3.1bn (0.02-0.15 per cent), with a central estimate of £1.6bn (0.07 per cent).
Under the second, UK GDP could increase by £1bn-£7.7bn (0.05-0.36 per cent), with a central estimate of £3.4bn (0.16 per cent of GDP).
By comparison, the government’s most recent estimate of the cost of Brexit to the UK economy, published in 2018, suggested that a Canada-style free trade agreement could hit GDP by between 3.4 and 6.4 per cent, while a no-deal Brexit – referred to by Mr Johnson as an “Australian-style agreement” – would cost the economy between 6.3 and 9 per cent of GDP.
That is a pretty high cliff edge Boris Johnson is driving us towards.
