Can Theresa May negotiate a better trade deal with the US than the EU's aborted attempts. Can she? Donald Trump is ripping up all US trade deals and cancelling those that are still being negotiated and ratified. The UK is doing the same with all the trade deals it had through EU membership. Both are signalling that no deal is better than the current deals on offer. After all, you would only rip up a deal if you knew that you'd be better off if that turned out to be your end position. In doing so, they are signalling that they are placing a higher value on no deal at all. It stands to reason that if two parties place a high value on "no deal" they are quite likely to choose that as the best outcome. It follows, then, that a US/UK deal is bound to fail. Now, that is quite a bold statement so let's dive in and look at it in a bit more detail. What follows is a rusty physicist's take on trade deals, partly as a bit of fun and partly to make a point. If you find logic puzzles tedious then I'd recommend just skipping straight to the end. If, on the other hand, you enjoy arguments based on logic then let's celebrate Saturday together with some inequalities.
***Start of logical witterings***
Imagine a trade proposal P. It doesn't really matter what P represents exactly but let's just imagine for a second that it is the label stuck on a huge set of documents setting out a trading relationship between two parties. Imagine also that the two parties are called A and B. Country A has a formula to compute the value of any trade deal. It might just be a set of metrics used to weight each advantage and disadvantage of the proposal to get an overall score. To speed things up we'll use some maths notation. From now on we'll use the notation A(P) to denote the value that country A places on any trade deal P. We'll do exactly the same with B(P). No deal at all is also a kind of trade deal so both countries should be able to use their formulae to compute the value of no deal. For speed we'll denote this with A(ND) and B(ND). (ND = no deal). If a trade deal is to exist between two countries A and B then there must exist a proposal P such that
A(P) > A(ND)
B(P) > B(ND)
That just says that country A and country B must both consider the trade deal to be better than no deal at all. Unless a proposal P can be found that satisfies this condition the trade deal will fail. If a proposed trade deal is only to the advantage of one party then the other will reject that proposal because they will take the view that the status quo is better. The trick is to find at least one proposal that is acceptable to both parties and passes the test. If it isn't possible to find a proposal that passes the test then there can be no deal. There are thousands of possible proposals covering all sorts of combinations of quotas, standards and legal frameworks so this might seem a bit like finding a needle in a haystack. I would guess that after a while each party starts to a get a feel for how the other estimates the value of a proposal and the value they place on no deal. That stops time being wasted on proposals that will just be rejected. Only by getting to know each other over time can they iterate towards a proposal beneficial to both parties. There might even be multiple proposals that could pass the test. That being the case, each country will haggle for the one that brings it the most advantage.
I'm getting a bit bored with these faceless countries A and B. Let's start thinking about the UK, the US and the EU. I really want to work out if there is a trade deal that the UK and US can both sign. The aim, therefore, is to consider if there exists a trade proposal P that satisfies
UK(P) > UK(ND)
US(P) > US(ND)
I'm also getting a bit bored with this generic trade deal P. Let's think about the specific proposal that was the end-point of the TTIP negotiations between the EU and the US. From now on we're going to call that PTTIP. We don't know what was in that proposal but that doesn't matter because we only actually need to know that the EU walked away from it. From that we can deduce the inequality
EU(PTTIP) < EU(ND).
Can we reason from this point and conclude that the UK would also reject PTTIP? Yes, we can. The first thing to remember is that the EU walked away because of the burden of investor-state disputes and the secretive courts proposed to adjudicate these squabbles. The UK is walking away from the EU because it now considers supranational courts far more to its detriment than it did just 12 months ago. I'd even say that being free of supranational courts is a Top 3 priority for the UK. I think it would be fair to say that
UK(PTTIP) < EU(PTTIP)
because the UK clearly hates supranational courts even more than the EU. We can also reason that
UK(ND) > EU(ND).
In fact, it is that very inequality that led the UK to tear up all its deals with the EU and all tertiary countries. I think the following inequality sums up the situation:
UK(PTTIP) < EU(PTTIP) < EU(ND) < UK(ND)
The UK should clearly walk away from UK/US trade talks if it was offered the last deal rejected by the EU or anything approximating it. Would that deal remain beneficial to the US? TTIP negotiations were quite advanced so we can assume that the US was getting somewhere relatively close to its threshold. Donald Trump, of course, has just raised the threshold. It's not at all clear that PTTIP would even be something the US would now consider. It's likely it could only offer something more advantageous to the US, something that will be less advantageous to the UK. This US/UK deal is doomed.
***End of logical witterings***
What have we learned? We learned that a US/UK deal ought to be highly unlikely because both nations place a high value on no deal. A deeper examination revealed that if the US/UK negotations end up somewhere near the final TTIP proposal then the UK should definitely accept no deal as its preferred outcome. That TTIP proposal is unlikely anyway because it is likely to be worse than no deal for Donald Trump. That's right, he will only be able to offer a deal more in his favour. We need to think about the kind of deal that could ever be acceptable to a man who said that the proposed Trans-Pacific Partnership would "rape" America. Such a deal ought to be rejected even more quickly by the UK if rational processes were applied to the problem.
|The UK has taken off its thinking head.|
This can all be avoided by voting Yes at indyref2,
PS I don't actually think that trade deals are negotiated through a numeric evaluation of their quality. Having said that, my deeply unattractive STEM mindset thinks that they could and should be subject to quantitative analysis. What you see here is how a rusty physicist would attack the problem. Having said that, it must be possible to say that deal X is better than deal Y. Without that relative assessment it would be impossible to proceed at all. In making such a decision a human mind is weighing up the pros and cons and attaching mental weights to each pro and each con. There is definitely a quantitative process at work here, one that is driven by a set of political goals and views. The only thing missing in the real world is the ability to actually write down those goals in a closed arithmetic form. In the absence of a closed form, some kind of Bayesian approach might work instead. Those functions UK(P) and US(P) are probably a bit noisy in practice and decisions are probably drawn from a statistical distribution rather than the binary choice I assumed. I just wanted to think about how these worked in "laboratory conditions" because real world complexity only clouds the basic point I wanted to make. The basic point, of course, is that a US/UK deal makes no sense at all, given the criteria the Prime Minister used to favour leaving the Single Market.
PPS I'm going to look at some of the issues that might dominate a US/UK deal. What will the UK need to concede? What might it gain? How will it affect the balance of trade between the US and the UK? Hold on to your hats.