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Trade between the US and UK pre-Brexit explained

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Last editedFeb 20212 min read

For a while it looked as though Brexit was going to be an ongoing state of affairs rather than an actual event, but at 11pm on December 31, 2020 the year-long transition period came to an end after the European and UK parliaments ratified a new trade deal. Brexit will likely continue to dominate much of the conversation between Europe and the UK for the next few years at least. The deal that was signed off was fairly basic and included nothing, for example, on services, which make up a huge part of the UK economy.

The wider impact of Brexit

Arguments about how Brexit will impact the UK seem set to continue as well. Whether issues over importing and exporting goods represent “teething problems” (the phrase used by UK government ministers) or endemic issues with the whole concept of Brexit remains to be seen. From the US perspective, the signing of the Brexit trade deal does mark the chance for the UK government to begin seriously negotiating a trade deal with the US. Informal talks about a deal of this kind post-Brexit began after the Brexit referendum in July 2016, but the fact that the UK government is now free to sign any deal it likes with any third country means that discussions are likely to become more detailed and intense.

The pre-Brexit situation on UK–US trade

In 2018 the US was the largest export market for the UK, but only the seventh largest import partner. This meant that the US imported $60.8 billion in goods and $7.8 billion in services from the UK, figures that had risen 14.6% and 6.1% respectively in the previous year. Among the most heavily imported items were pharmaceuticals, machinery, vehicles, and mineral fuels.

Post–Brexit negotiations

This was the starting point for negotiations on a new trade deal. In February 2019, the US government published its own summary of what it required from the UK for a deal to be successful. The main objectives highlighted by the working paper were standards and regulations between the two countries being aligned and tariffs paid on exports and imports being reduced. Doubts referring to the difficulty in reaching an agreement that satisfies both sides centered on two things – the uncertainty that remained while the UK negotiated a final Brexit deal, and the major differences in the sheer size of the respective markets.

Some of this uncertainty has been removed by the signing of the Brexit trade agreement, but the differences between the two markets remain huge – the US has a population of around 328.9 million and a GDP of $19.485 trillion, while the UK has 66 million inhabitants and a GDP of just $2.683 trillion. While the negotiations were ongoing the conditions for anyone importing from the UK to the US were improved by the weaker pound, which made it cheaper to import from the UK.

How will Brexit impact US businesses in the future?

To date, the reality of Brexit hasn’t stopped the US doing business with the UK. Statistics show, for example, that foreign direct investment (FDI) – which represents US money being invested in UK businesses – grew by 9% year on year in the 12 months following the Brexit referendum, hitting $747.6 billion.

On the downside it seems likely that those US businesses who currently use the UK as an entry point into the EU may find themselves struggling under the burden of extra paperwork that now applies to goods moving between the UK and the EU, and the impact this will have on cash flow. This could particularly affect SMEs, and will likely lead to many of them opting to shift their European operation to within the EU itself. Anyone thinking that this seems like a rather drastic solution should note that it has been reported that UK government bodies have advised UK-based companies to do exactly the same thing.

In the longer term, any UK-US trade deal post-Brexit is likely to be hampered by the US government insisting on having access to the UK medical sector, something that would be politically very difficult for any UK government to sell.

We can help

As the landscape for international trade shifts, you need a payment partner that stays completely up to date with the latest changes, and follows every detail so you don’t have to. That’s exactly what you get with GoCardless. In addition, GoCardless can help you with ad hoc payments or recurring payments.