17 June 2021

CER: The UK-Australia trade deal has been painted as both a travesty and a triumph for Britain – it’s neither

The UK and Australia have finalised negotiations on a trade deal, in broad terms (which means they still need to sort out some of the legal detail). While for some this is seen as excellent news and for others a travesty, the reality of the deal is much more measured.

With the rather large caveat that we have not seen all of the detail yet, the deal looks set to eventually remove all tariffs on goods traded between Australia and the UK, with reductions for food products phased in over 15 years. There are also suggestions that the UK has succeeded in making it easier for young Brits to travel and work in Australia.

There will also inevitably be talk of “world-beating” provisions on services and digital trade, that will largely see both countries commit to do things they were doing anyway.

But what is the real impact of this deal?

Proponents will tell you that slashing tariffs on Australian imports will see consumer prices fall and consumer choice increase in the UK. Well, maybe. It will certainly become marginally cheaper for firms to import some Australian products, and they might pass these savings onto consumers. But we’re talking about pennies rather than pounds.

Opponents will tell you that the deal opens the door to a flood of low-quality food products that will threaten the livelihood of UK farmers. But this also seems unlikely. Australian food exporters are currently focused on selling to (nearer) markets in Asia, and while they will appreciate having the option to sell to the UK, are unlikely to pivot so dramatically. And what they do export will likely be at the higher end of the market.

We also need to take into account that lots of British supermarkets pride themselves on selling British produce. Where these Australian imports do come into competition with food products currently sold in the UK, they are just as (if not more) likely to displace imports from the EU, not domestically produced products.

On an economy-wide basis, positive or negative, the impact of the deal will be negligible. Due to Australia being very far away, and for the most part trade barriers already being low, the government estimates that UK GDP, if all goes very well, will be 0.02 per cent larger than it otherwise would have been in 15 years.

But this is not uncommon – trade deals rarely do much for GDP. And the small aggregate gains do not mean that trade deals are useless. Some businesses will most certainly benefit (and yes, some may lose out). And anything that makes it easier for people to live and work between countries is not to be sniffed at.

There is also the political rationale to consider. From a British perspective signing a deal with Australia both serves a domestic political narrative, in that it can be presented as a Brexit victory, and an international one, in that it paints a picture of a UK that is open to trade liberalisation and rules-based trade. It also paves the way for the UK’s eventual accession to the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), a trade deal between 11 countries, including Australia.

However, there will be tougher challenges to come. The UK will probably go on to quickly do a trade deal with New Zealand, and eventually join the CPTPP – but this does not give us any insight into whether the UK will be able to conclude tougher negotiations with the US, India and South American countries.

Global Britain has its first trophy, but it is yet to play in the big leagues.

CER

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