A prospective trade deal between the United States and the United Kingdom could, if handled right, be a catalyst to spur global economic growth through enhanced trade and regulatory reform. This would require recognition by other major trading nations of the advantages of removing regulatory obstacles to trade liberalization.
Background
A February 27 White House meeting between President Donald Trump and UK Prime Minister Sir Keir Starmer set the stage for negotiating a zero tariff “free trade” agreement between the two nations. Such an agreement might also include other provisions aimed at removing regulatory barriers that often impose huge impediments to mutually beneficial transactions.
One anticipated benefit of Brexit – the UK’s withdrawal from the European Union as the result of a 2016 popular referendum – had been a significant reduction in excessive regulatory costs through the elimination of burdensome EU rules. These costs, which businesses list as a top burden that discourages investment in the EU, have increased over the past year, with continuing regulatory expansion. The November 2024 Draghi Report, by a noted former European Central Bank President, highlighted the negative impact on European economies due to overregulation.
Regrettably, the UK missed the boat post-Brexit in not opting for a more open, less regulatory economy that could have spurred economic growth. As a result, the UK faces serious continuing economic stagnation, absent significant changes to regulatory, budget, and tax policies.
Economically sensible UK policy reforms are badly needed now.
Prospects For International Trade Reform
International trade is one area where the prospects for UK policy reforms finally look promising.
The Comprehensive and Progressive Trans-Pacific Partnership (CPTPP, accounting for 15% of global GDP), which the UK joined in 2024, leaves signatories free to shape their domestic regulatory regimes as they wish. It accomplishes this through “mutual recognition and equivalence.” MRE means that in applying national regulatory quality requirements to imports, the standard under which the imports were produced is irrelevant.
The CPTPP MRE-based model enhances economic growth in two key ways. It expands mutually beneficial international trade by eliminating a major impediment to trade among Partnership members. It also encourages standards-based competition among signatories, facilitating the emergence of “better” standards that can be adopted by other nations. Improved standards enhance innovation by providing a foundation for collaboration, reducing development costs, ensuring compatibility between products, and creating a reliable environment for new technologies to flourish.
By contrast, as trade expert and non-partisan Growth Commission Chairman Shanker Singham explains, the EU conditions market access on accepting the EU regulatory system and EU standards. The European approach to trade not only precludes the CFTPP’s benefits, its notorious economic efficiency further retards economic growth.
Fortunately, the U.S.-Mexico-Canada Agreement, like the CPTPP, features MRE. This should make it easier for both the UK and the U.S. to adopt MRE as a key feature in free trade negotiations. Very recently, bipartisan House and Senate sponsors of legislation to support UK-U.S. trade negotiations cited the importance of having those negotiations build on the USMCA framework.
The successful broadening of U.S. trade opportunities, in tandem with the CPTPP market opening (which encompasses major Asian countries plus Australia, Canada, Mexico, and Chile), would offer major economic dividends to the UK – and, also, to the U.S.
A major expansion of U.S.-UK trade could raise economic growth in both countries. Furthermore, it would incentivize the UK to enhance the quality of its standards and system of rules with an eye to global trade, rather than focusing primarily on developing inferior alternatives aimed at satisfying EU strictures. This could generate economic dividends within the UK.
Notably, as Shanker Singham points out, the “Growth Commission estimates that, if the UK made its domestic regulatory system just 10% more pro-competitive, it would see a 5.5% boost to GDP per capita.” Expert regulatory economists have pointed to analogous benefits to the American economy that would stem from U.S. regulatory reform (which President Trump has made a top priority for his second term).
What’s more, the EU might also take note. The new leadership of the European Commission, the EU’s executive and administrative body, recently acknowledged the need for far-reaching systemic reform in light of the Draghi Report’s findings. The benefits to Europe of a less regulatory, MRE-centric EU international trade policy might become apparent if a new UK-U.S. trade agreement and enlarged CPTPP yield significant economic dividends.
The Next Steps
Much needs to be done, of course, to make a successful, growth-enhancing U.S.-UK treaty a reality. Negotiations have not even begun. But there are signs that momentum is already building for the swift completion of a deal.
A U.S.-UKA FTA might turn out to be a lot more than a “win-win” for both nations. In the long run, it could become a catalyst for a substantial expansion of international trade and a major spur to global economic growth.