Trade Pacts Face Another Hurdle With ‘Brexit’ Vote in EU Referendum

Trade Pacts Face Another Hurdle With ‘Brexit’ Vote in EU Referendum

U.S. trade agenda is already beset by slowing global growth

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by Nick Timiraos
Wall Street Journal

WASHINGTON — A U.S. trade agenda already buffeted by slowing global growth and a rising backlash over trade liberalization faces new obstacles with Britain’s decision to leave the European Union.

The indirect financial spillovers from the “Brexit” vote are likely to matter far more to the U.S. economy than any direct hit on trade or import prices with the U.K. Sharp stock and currency moves, such as those on Friday, threaten to curb investment and chill growth more broadly.

Global trade earlier this year already registered its largest decline since the financial crisis of 2008-09 amid big drops in commodity prices over the past three years.

Slow global export growth “is a bigger issue by far than the separation of Britain from the EU alone,” said Carl Weinberg, chief economist at High Frequency Economics in Valhalla, N.Y.

The U.K. is America’s seventh-largest trading partner but accounts for a relatively small share, 3%, of U.S. trade. The Brexit result could have far bigger ramifications for U.S. investment in the U.K. because many large banks and other multinationals have located operations there as a gateway to continental Europe.

Economists and policy makers said Friday that the U.K. vote marked a sharp backlash against globalization and that its greater ramifications would be geopolitical.

A petition against TTIP signed by 3 million people was handed to the European Commission in Brussels. Photograph: Wiktor Dabkowski/dpa/Corbis
A petition against TTIP signed by 3 million people was handed to the European Commission in Brussels. Photograph: Wiktor Dabkowski/dpa/Corbis

The vote “needs to be a wake-up call” for pro-trade advocates, said Sen. Mark Warner (D., Va.), a strong supporter of the Trans-Pacific Partnership, a treaty negotiated last year with 12 nations in Asia and the Americas. Trade advocates “need to more clearly acknowledge” and respond to the downsides of trade, he said.

Thursday’s vote plunges the Pacific trade pact and another such agreement sought by the Obama administration into further uncertainty. The TPP has faced a rough reception in Washington during an election season in which the likely presidential nominees of both parties have opposed it.

The Obama administration has been in three years of negotiations on the second agreement, called the Transatlantic Trade and Investment Partnership, between the U.S. and the 28 member states of the European Union.

“Without the United Kingdom, it will be far harder to conclude TTIP in 2017 or beyond” because continental Europe is “less disposed to free trade and investment than the British,” said Gary Hufbauer, an economist at the Peterson Institute for International Economics.

Both America and Britain are each other’s largest foreign investors. Some analysts have suggested a Brexit could hasten a bilateral trade deal between the U.S. and U.K. Such agreements, particularly between close allies, have generally been easier to approve than larger multilateral ones.

While TPP can’t easily be renegotiated, Mr. Hufbauer said adding the U.K. to the agreement might help rebrand it, “giving the pact a decidedly different and more palatable flavor” in Congress and with the American public.

Write to Nick Timiraos at nick.timiraos@wsj.com

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