After UK Compromises on Brexit, What’s Next for the U.S.?

Soon after the Cold War ended, the World Trade Organization (WTO) was founded in April 1994, and the United Kingdom and the United States became leaders of globalization. A mere 24 years later, the situation has changed dramatically: Britain and the United States have become leaders of de-globalization.

What exactly is de-globalization?

Britain’s current policy, popularly known as Brexit, is the process of leaving the European Union (EU). The United States, on the other hand, is stirring up trade disputes with its largest trading partners and even launching a “trade war.”

De-globalization does not refer to complete rejection of globalization, but advocacy for adjustment of its relationship with the existing and previous globalization trends. This adjustment will undoubtedly affect domestic and international economies, leading to “trade (investment) diversion” and “trade (investment) creation.”

Two options for de-globalization have emerged so far: soft de-globalization and hard de-globalization.

For Britain, the white paper published by the British cabinet on July 12 shows that Britain has made a great compromise in the process of Brexit, the main symbol of de-globalization: it has chosen to adopt a “soft Brexit.” The white paper proposed to create a “free trade area for goods” with the EU, so that Britain can continue to align commodity rules and standards and establish close customs arrangements with the remaining 27 EU member countries. The British government hopes to participate in EU institutions including the European Aviation Safety Agency and European drug agencies and will accept the rules and costs of these institutions.

The hope is that as Britain firmly leaves the EU, at the same time it will establish a new partnership with the EU.

The white paper sets out a blueprint for so-called “soft Brexit.” Britain may formally leave the EU, but in essence still maintain most of the substantive relations with the EU, especially in trade and economic fields.

What enlightenment does the Brexit white paper provide for the understanding of the “trade war” launched by the Trump administration? First of all, “soft Brexit” is a big compromise on “de-globalization,” which suggests that British politicians are aware of the high cost of “economic nationalism” and, to a certain extent, have given up the policy of “throwing the baby out with the bathwater.”

Like Brexit, the United States’ trade war is actually just a break from the existing international governance system and arrangements. By contrast, Britain has already compromised on the issue of Brexit. Will the United States follow with compromise in the trade war?

The answer depends on how many people in the United States support the Trump administration’s “trade war” proposal. America will hold the mid-term elections in November this year, which will test how much domestic support there is for Trump’s “trade war.” Before the elections, unfortunately, the Trump administration is betting with the livelihoods of people across the United States and around the world, hoping to win American voters by attacking its trade partners.

If most people in the United States end up supporting the “trade war” of the Trump administration, the United States will likely refuse to compromise with China and the EU and continue to waging the “trade war” until its trading partners make concessions.

If Trump’s Republican Party made no breakthroughs or even failed in the mid-term elections, although the Trump administration is dissatisfied with Britain’s soft retreat, its “trade war” strategy will gradually move towards compromise.

Presently, the Trump administration has failed to resume trade negotiations with other trading partners such as China, but continues to intensify the “trade war.” However, because American producers and consumers are already feeling adverse effects of the “trade war,” some members of the Trump administration have shown new signs of willingness to compromise. For example, at a hearing of the Financial Service Forum on July 13, U.S. Treasury Secretary Steven Mnuchin stated that the tax imposed by the United States on Chinese goods was only a trade dispute, not a “trade war.” He predicted China and the United States to resume trade negotiations, but only on the prerequisite that the Chinese government is willing to make major adjustments.

Of course, the situation is not so simple that Britain’s “soft Brexit” could inspire the end of the U.S. trade war. If trade disputes are not worth the gain or “economic patriotism” is not applauded, the Trump administration will return to the negotiating table. Before that time, China needs to prepare for future negotiations with the Trump administration.

The author is a professor of international relations at the Ocean University of China.