This week, the Conservative Party won the parliamentary and UK prime minister election in a landslide. As a result, the Tory government will almost certainly conclude Britain’s departure from the European Union (EU). Equally as important, if Prime Minister (PM) Boris Johnson delivered Brexit today, his Conservative government will immediately aim towards reaching a trade deal with the US.
Even though this has a direct impact on American consumers, the media didn’t give the UK prime minister election the attention it deserved. Instead, they mostly focused on the impeachment hearings and other stories. Similarly, British politicians and news outlets’ narratives revolved around US corporations and health care. They didn’t discuss other aspects of the potential agreement, which leaves American and British consumers in the dark.
In reality, a trade deal between the two countries will impact your household budget and cost of living. This includes automobile prices and energy bills, to give a couple of examples. Perhaps most noteworthy, because of the UK prime minister election results, an agreement with the US, which creates plenty of Americans job and drives wages upwards, is increasingly likely. All consumers will feel the change, whether directly or indirectly.
The UK Prime Minister Election: What if PM Johnson implements Brexit today?
Members of the EU are part of a large single market, where goods and people can move across borders without any restrictions. Yet, this also means that, if an EU member imports goods from a non-EU country, these products or services have access to all of Europe’s markets.
For example, Greece reaches a trade deal with Egypt, where Egyptian companies can operate across the Mediterranean Sea and offer tourism services to Greek consumers. The bloc’s single market would enable the same Egyptian firms to automatically enjoy access to the rest of the EU.
Because of this, EU countries only negotiate trade deals as a bloc. Members can’t reach one-on-one agreements with non-member states. In addition, all soon-to-be 27 EU countries must approve of any trade framework.
Nonetheless, when the UK leaves during the coming few weeks, they no longer have to abide by the single market’s rules. To clarify, if the new government delivers Brexit today, Britain can immediately negotiate agreements with other countries (such as the US) on an individual basis, without needing the approval of every EU member.
During the first nine months of 2019, the US imported almost 150 billion cars from abroad. About 21% of them came from the Europe. That, however, may change after US President Donald Trump imposes tariffs on EU-made autos.
Hypothetically, if the new Conservative government delivers Brexit today, British cars will not be subject to those tariffs. In fact, a trade deal with the US might enable the UK to sell even more vehicles to American consumers.
Without the burdensome EU regulations on trade and auto manufacturing, Britain can both produce and ship commercial cars to the US much quicker. As far as the American consumer is concerned, this will translate to cheaper vehicle prices and more options.
Keep in mind that the UK’s leading export to the US is auto vehicles. For instance, between January and September of 2019, five percent of America’s overall auto imports were made in Britain. Just as importantly, one out five (21%) of foreign used cars were bought out of the UK.
In short, as a non-EU member, Britain’s role in the US auto market will increase, especially after PM Johnson and President Trump reach a trade deal. Moreover, UK car makers may even outcompete their tariff-riddled European counterparts.
Oil and Energy
Refined oil and power generators are also amongst the top five British imports to the US. These products, too, will become easier to make and sell if the Tory government concludes Brexit today or (most likely) in the near future.
This is largely because UK energy companies don’t have to abide by the EU’s environmental regulations and restrictions.
Additionally, the US already buys almost ten billion dollars worth of cars from the UK. Energy and power machinery imports, on the other hand, cost $3.5 and $5.2 billion, respectively.
In short, a trade deal will likely lower the cost of transportation and gas to one degree or another.
Foreign Investment and Jobs
British companies and business people invest more money in the American economic than any other country’s firms. In fact, 15% (or $540 billion) of the US’s foreign direct investment (FDI) comes from the UK.
Similarly, American enterprises are Britain’s leading source of inbound cashflow. US companies account for 12% (or $750 billion) of the UK’s FDI.
Needless to say, a trade deal between the two countries will only expand this, especially when it comes to job creation. Currently, US-based British companies employ almost 1.25 million American workers. This benefit is felt across all 50 states.
Above all else, Britain’s firms in the US pay their employees a respectively high salary. These companies mainly invest in the manufacturing, financial services, technology, and medical industries.
Therefore, a more open trade relationship doesn’t just create more American jobs, but it also puts upwards pressure on US employees’ salaries. After all, when a British company pays high wages, American businesses follow suit in order to attract and retain skilled workers.
How long will Brexit take?
During the UK prime minister election campaign, PM Johnson’s critics said that a trade deal with the US could take ten years or more to negotiate. However, they are wrong.
Currently, because agreements need the approval of all member states, the EU only reach deals with non-member countries after a lengthy process. For example, it took the bloc 22 years to strike a trade treaty with Canada. Of that, the negotiations alone lasted for almost seven years.
Meanwhile, Canada discussed and signed deals with the US within less than two years. Even the most recent USMCA trade agreement didn’t take that long. In fact, American policy makers, on average, only spend 18 months to reach treaties with other countries.
If the UK tried to negotiate with the US as an EU member, it may, indeed, take ten years or more. Yet, as an independent nation that doesn’t need the approval of other member states. In turn, a US-UK agreement may be concluded within a few months.
The UK Prime Minister Election and Your Household Budget
Britain and the US are very close trade partners. The two countries exchange crucial products and services with one another. Moreover, the flow of investments creates millions of jobs and increases workers’ wages on both sides of the Atlantic.
As Brexit today looks more certain than ever, the UK will have more flexibility to expand their relationship with the US. Without burdensome regulations and collective negotiations that involve EU members, Britain can strike a deal with American officials within a short period of time.
When you read the news or watch TV, try to ask yourself: Will this impact my life? Unfortunately, media outlets tend to ignore important issues that shape household and consumer budgets.
Your expenses and finances are almost certainly going change if the US and the UK reach an agreement, whether directly or indirectly. In fact, you may even find a new job or get a raise.