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Is free trade under threat?

  • Monday, May 22, 2017

The President of United States of America Donald TrumpThis year international trade agreements seem to have come under growing political and populist attack across the developed world. It has taken seven years for Canada and the EU to negotiate the Comprehensive Economic and Trade Agreement (CETA) only to be threatened by the Wallonia region of Belgium. The Walloon Parliament almost derailed the entire agreement when it was due to be ratified.

The CETA required approval from 38 EU national and regional parliaments and was seen as a litmus test as to whether the EU was capable of reaching complex trade agreements. The success of CETA is of particular interest to the UK as we consider our own trade negotiations.

CETA was not the only trade deal facing protectionist backlash. The Transatlantic Trade and Investment Partnership (TTIP) and the Trans Pacific Partnership (TPP) are languishing without the political will to see them concluded. The TTIP between the USA and the EU would account for 50% of global GDP but is now unravelling while the TPP between 12 Pacific Rim countries that collectively account for 40% of world GDP has stalled in the US Congress. President elect Donald Trump has promised to withdraw American support for the agreement on his first day in office.

Following the drawn out nature of the CETA negotiations, it is clear that a free trade deal with the EU would be better negotiated within the two year time frame of Article 50, while we are still members of the EU and therefore can negotiate with the EU Commission. Beyond the two years, any agreement would face the possibility of being vetoed by the member states or regions similar to the fate of the CETA deal.

The future agreement between the UK and the EU will be complex and extensive. The deterioration of recent trade deals will concern markets over Britain’s ability to establish these agreements swiftly and easily. Prime Minister Theresa May is determined to see Brexit concluded and the path to success will depend upon her and Chancellor Angela Merkel reaching a mutually beneficial agreement. Both women will have compatible objectives as both countries are faced with similar challenges. There are several elections due to be held in the Eurozone in 2017 not least in France where incumbent president Francois Holland has decided not to seek re-election and is expected to be replaced either by Republican Francoise Fillon or National Front leader Marine Le Pen.

Future trade deals are the key to Britain’s future prospects. While the media coverage will inevitably be focussed upon our relations with the 27 remaining EU member states, there are another 165 non-EU states to trade with. These countries account for the vast majority of the world’s growth. The potential outcome of Brexit is that Britain could be bold and seek free trade agreements across the world. We could be the first large economy to commit to trade in the same way that Singapore has so successfully done.

In a world were free trade agreements seem to be stalling, Britain could take a lead. It is becoming clear that free trade and the EU are not as compatible as one might think. Britain could therefore get ahead of the EU on agreements with countries such as India, China, the USA and Australia. We would have some advantages as Britain does not have vested interests and heavily state subsidised industries to protect. We have much to gain from unrestricted commerce. Britain as a free trading economy with low corporation tax would be an attractive home for any EU focussed business.

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Chris Davies

Chris Davies

Chartered Financial Adviser

Chris is a Chartered Independent Financial Adviser and leads the investment team.

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