An overview of the US-UK trading relationship
The sheer size of the US economy continues to attract businesses seeking to expand their operations overseas. In 2021, United States GDP was around $23 trillion or 17.20% of the world economy according to official data from the World Bank. This compares with UK GDP of $3.19 or 2.38 of the world economy.
In 2020, the UK was the United States’ seventh-largest goods trading partner by country, and its largest services trading partner. The UK comprised 5% of total U.S. trade, and the United States was nearly one-fifth of total UK trade. Top US goods exports were nonferrous metals (excluding aluminum), aerospace products and parts, and oil and gas. Leading US goods imports were pharmaceuticals, motor vehicles, and aerospace products and parts. Financial services, various business services, transport, intellectual property rights (IPR), and travel, which were constrained by the pandemic, have historically comprised a large share of bilateral services trade.
Covid and Brexit effects
In 2020, the UK economy shrank by 9.4%, the largest contraction of many advanced countries, due to the combined effects of COVID-19 and Brexit. The UK economy rebounded by 7.2% in 2021, a year in which the UK lifted COVID-19-related restrictions, but also faced post-Brexit trade disruptions. The UK economy may grow more slowly (3.5% projected) in 2022, but faster than many other advanced economies, including Germany and the United States (1.9% and 3.4% growth projected in 2022, respectively). Pressures on the UK economy may include supply disruptions, labor shortages, and inflation, which reached 9.1% in May 2022.
Bilateral Trade Issues
The US and the UK historically have been leading forces for global trade liberalization. Their trading relationship is relatively open and aligned, but some tariff and non-tariff barriers remain and, frictions emerge periodically on specific issues, such as on tariffs during the Trump Administration. President Biden has conveyed his intention to strengthen the countries’ trading relationship. The two countries signed a “New Atlantic Charter” in 2021 that emphasizes “open and fair trade.”
In June 2021, the United States and the UK reached an understanding on a cooperative framework to address their long-running dispute in the WTO over civilian aircraft subsidies to Boeing and Airbus, respectively. They agreed to suspend dispute-related tariffs while seeking a longer-term solution, and to cooperate on related challenges posed by non-market economies, such as China. The United States and the EU reached a similar, separate understanding on parallel issues. In a November 2021 political agreement, the UK pledged to transition from its digital services tax (DST), taxes on revenues that certain companies generate from providing digital services, to a new global tax framework (which signatories must take steps domestically to implement). In exchange, the United States canceled additional, already suspended duties on certain imports from the UK. The duties arose from a US “Section 301” investigation, prompted by concerns that the UK’s DST unfairly targeted US firms. The United States reached similar political agreements with some other countries, including in the EU. The United States and the UK are working to address frictions over US “Section 232” tariffs on steel and aluminum imports from the UK, and UK retaliatory tariffs on some US exports. Stakeholders disagree on whether the two countries should replicate a US-EU deal on parallel issues that replaces US steel and aluminum tariffs with a tariff-rate quota system and commit to cooperation on related global overcapacity and carbon emissions issues.
Potential USUK Trade Agreement
Brexit opened the possibility of a USUK free trade agreement (FTA). The Biden Administration has been reviewing the bilateral trade negotiations that occurred during the Trump Administration under the latest Trade Promotion Authority (TPA, which expired in 2021). The two countries held five negotiation rounds in 2020 but did not reach a final FTA.
For the UK, a trade deal with the United States has been a major priority to present its post-Brexit competitiveness. Given the similarities in approach of the two countries, there is grounds for optimism. However, sticking points could reemerge. For example:
- The United States had sought full, transparent, and nondiscriminatory access to the UK pharmaceutical market, some in the UK feared that an FTA would privatize health services and raise drug prices, despite assurances from UK officials that these issues were not up for negotiation.
- Financial services, e-commerce, and investment may be among other contentious areas. Selected Issues for Congress Members may continue to monitor US trade and economic interests at stake in a trade agreement implementation.
Overall outlook
Although an USUK FTA is some way off, such an agreement would build on what is, for both nations, already a vitally important trading and investment partnership.
Sources:
- CRS, data from the U.S. Bureau of Economic Analysis (BEA) and the UK Office for National Statistics (ONS). 2021
- US Congressional Research Service, February 2022.