Officials ‘sceptical of prospects of significant US trade deal’ after Brexit

With a significant power imbalance between the two sides, the “sharks” on the US trade negotiation team will expect Britain to concede more than was demanded from the European Union in the failed Transatlantic Trade and Investment Partnership talks, the report warned.

A UK-US free trade deal has been touted by prominent Brexiteers as one of the principal benefits of withdrawal from the European Union, and failure to deliver would be “a significant political setback” for Theresa May’s government, said the report.

But it added: “Despite [US President Donald] Trump’s initially positive signals, the current US administration’s level of interest in negotiating an FTA with the UK remains unclear at best.

“Ultimately, the UK is a relatively small trading partner for the US, at least for goods, and the Trump administration appears more focused on ‘levelling the playing field’ in existing major trade agreements such as Nafta [North American Free Trade Agreement], or with its bigger trade partners such as China.

“Moreover, Trump’s mercantilist approach raises questions about US enthusiasm for negotiating any trade deal, unless such a deal is demonstrably to the advantage of US companies.”

Cutting tariffs on agricultural products would be a key US objective, the report predicted.

It warned that, while opening the UK market to cheap US food would cut prices for the consumer, it would “destroy large parts of British farming”.

Other US priorities would include relaxations on food safety rules and labelling, genetically modified crops, data privacy and access for US healthcare firms to the NHS, all likely to “spark strong public opposition in the UK”.

On key UK demands for better access in service sectors like higher education, finance and the creative industries, “significant concessions from the US… look unlikely”.

Despite the enthusiasm expressed by politicians on both sides of the Atlantic, officials directly involved “express scepticism that a deal of any significance can be achieved”, said the report.

“The conclusion is clear: a US-UK FTA is only going to happen if the UK makes concessions that are unlikely to be politically acceptable and in any case, promises relatively limited upside for UK business.

“However, the importance of such a deal to the overall Brexit narrative (and specifically, to the case for leaving the customs union) means that the government is likely to continue to behave as if negotiating an attractive deal with the US remains a realistic possibility.”

The report quoted one anonymous senior UK official as saying it was “very doubtful” that governments on each side of the Atlantic would overcome the challenges of reaching a deal and another saying Washington may decide “it’s just not worth it”, given the size of the UK economy.

One senior European Commission official told the researchers that “the UK desperately needs this deal, but the US couldn’t care less”.

A US government official said: “The US does not face any kind of pressure. It would be nice for Trump if he could deliver a bilateral deal but that is nothing compared to the political pressure that British government officials are feeling.”

The report also warned that serious negotiations with the US would begin only after the UK has resolved the nature of its future customs and regulatory relations with the EU, meaning an FTA is “not a near-term prospect”.

Former US Treasury secretary Larry Summers told the researchers: “It is delusional to think that a US-UK trade deal will happen any time soon. It is simply not possible.”

The report was prepared by Harvard’s Kennedy School of Government, where Mr Balls is a research fellow.