Benefits of striking deal with Trump may be outstripped by losses from crashing out of EU

It was supposed to be one of the biggest Brexit dividends. According to Liz Truss, an “ambitious and comprehensive” trade agreement with Donald Trump would reflect Britain’s unique relationship with the US, cutting red tape and tariffs to help British businesses and the economy grow.

The value to the nation: at most, an economy 0.16% bigger after 15 years. In the cold language of economic benefits, such a small number is almost a rounding error. The gains in cash terms are roughly £3.4bn under the best-case scenario, an amount worth less than the current annual contribution of Brentwood or Bury.

Set in the context of the potential costs from erecting tough trade barriers with the EU, or leaving the bloc on World Trade Organization terms (an Australia-style trade agreement, in the language of government), the numbers are even more stark.

Compared with the plan to add a small town’s worth of economic output to Britain over 15 years, failure to strike an EU trade deal would result in an economy 7.6% smaller than under current arrangements, over the same timeframe. That’s according to the most recent official economic impact assessment published by the government, late in 2018, when Theresa May was forced to reveal official forecasts.

At the time, the report also suggested that a Canada-style deal – of the type sought by Boris Johnson – would still leave the UK about 4.9% worse off.

To repurpose a comment made two years ago by Sir Martin Donnelly, once the most senior civil servant at the department under Liam Fox, as he assessed the prospects for British trade outside the EU: such a plan is akin to swapping a three-course meal for a packet of crisps.

Of course this is not the government’s stated intention. Free trade deals are wanted with the US, the EU and other nations – keep the three-course meal, crisps, and eat the lot. But carrying out negotiations in parallel may eventually force Johnson’s hand towards making tough choices.

Any deal with the US could influence any deal with the EU. It will be imperative for both to know what Britain wants, putting Johnson in a bind, even should he aim to play one off against the other.

One perhaps surprising point about the latest government analysis is the seemingly frank assessment of the limited benefits. This suggests the trade department was either not leant on, or refused to be cajoled into producing trumped-up estimates, according to Dr Peter Holmes, an academic at the UK Trade Policy Observatory at Sussex University.

“They are in line with the standard results,” he says, adding that such small gains probably reflect the relatively low tariff barriers between the US and the UK at present. The trade department estimates US tariffs on UK exports are worth about £493m, out of a relationship worth a total £220.9bn.

It could also reflect that non-tariff barriers – the red tape that Truss says she would like ripped apart – can be particularly tough to get rid off, especially should Britain refuse to bend to every demand made by Trump, and vice versa.

Truss warns that any deal must protect the NHS (the health service is firmly “not on the table” in Monday’s document) and also uphold the UK’s “very high standards on food safety and animal welfare”.

The clock though is ticking. Johnson has set a deadline of the end of 2020 for an agreement with the EU, do or die. Trump will undoubtedly want to show progress before the US elections in the autumn. Tougher and more detailed decisions over Britain’s post-Brexit trade priorities will soon need to be made.