LONDON (Reuters Breakingviews) - If specialness were a tradable commodity, the United Kingdom would be deep in deficit to the United States. As Britain moves closer to a clean break with its main trading partners in the European Union, the so-called special relationship with its transatlantic ally, which accounted for over 160 billion pounds of commerce in 2015, is even more important. With the United States under new management and Britain’s global role in flux, it is also vulnerable.
Trade policy is central to the Donald Trump presidency, and the simple message is that deficits are bad. That makes the likes of China and Mexico targets for retributive action, but the UK a fairly good neighbour. In the first 11 months of 2016, the United States ran a $1.5 billion goods trade surplus with its former colonial master. American companies have also acquired around twice as many British businesses as the other way around, according to Eikon data. When Trump tweeted on Jan. 7 that Britain is a longtime U.S. ally, and “very special”, it’s feasible he meant it.
Drill down a little, and the differing composition of trade suggests some fragility on the British side. Finance is a big source of value in the Anglo-U.S. relationship: The financial sector generated a 9.4 billion pound trade surplus for Britain in 2015. American banks like JPMorgan and Citi conducting business in London is one contributor. Over half of U.S. financial services imports come from Britain.
Even after Brexit, UK goods should flow across the Atlantic just as they did before. But if Britain is no longer a member of Europe’s single market – and Prime Minister Theresa May has hinted that such an outcome is highly possible – the country’s relative appeal as a trading hub will fade. That might affect goods trade; it will almost certainly affect finance. Easing bank regulation in the United States may also diminish London’s appeal.
Courting Trump, as May is set to do in the next few months, is clearly important. But courting Europe – especially on the importance of retaining access to financial markets – is just as critical. Without that, the special relationship may be more like friends with unequal benefits.