‘It’s the EU, stupid’: Reeves has backed Europe over Trump on trade – and she’s right to

When it comes to trade deals and bolstering the UK economy, the chancellor is wise to prioritise our friends closer to home, writes Sean O’Grady

Given the geopolitical context, Rachel Reeves’s suggestion that rebuilding Britain’s relationship with the European Union is more important than winning a trade deal with the United States has proved a controversial one.

Since Donald Trump returned to the White House and unleashed fire and fury on America’s traditional allies, the UK, like many of America’s loyal friends, sometimes feels as if it is being forced to choose where its best interests lie on defence, security and economics, while in the past such questions had been settled decades ago. The Atlantic alliance was the reliable foundation for everything, and America, Europe and other powers were crucial economic partners.

Even after Brexit, which did alter realities, the UK still sought to be a transatlantic bridge; and given that a trade deal with America never seemed possible, let alone imminent, it didn’t much figure in the headlines. But with Trump in charge, it feels like everyone has to decide if they want to be in his gang – or not.

Maybe it was a bit undiplomatic, as she prepares to meet the US Treasury secretary. But what it sounds like Reeves was trying to do in these fraught, turbulent times was simply to add some sensible context and to calm this sudden tumult for a UK-US trade deal. This, after all, was trumpeted as the great prize by Leavers during the EU referendum campaign; in reality, it was a project that attracted only desultory attention from both governments during the previous Trump administration, and which fell into disrepair after Biden took over and said the US wasn’t interested in trade deals with anyone. Period.

Now, out of the chaos of the Trump tariff war, such a deal is the centre of attention all of a sudden, and people are getting overexcited. And Reeves doesn’t get overexcited about anything.

The chancellor’s remarks were no more than a restatement of the realities of Britain’s trading position, and to highlight the old economic wisdom that a country’s largest trading partner is usually a matter of geography rather than size. That’s why Mexico is a bigger trading partner with America than China, and why the European Union, taking all the member states together as a bloc, is a more important market for Britain than the US.

But, as it happens, for historical reasons, and despite there never having been any proper trade agreement at all between the UK and the US, the latter, as a single nation state, is the biggest export market for the UK, ahead of the next two, Germany and Ireland (see how geography matters), China and the rest.

In fact, Reeves was actually understating matters because the UK could – in principle, if not political reality – deepen its economic relations with Europe in a way that’s impossible with the United States. Reeves said: “I understand why there’s so much focus on our trading relationship with the US but actually, our trading relationship with Europe is arguably even more important because they’re our nearest neighbours and trading partners.”

But economics is more than just trade. Look at it this way, for the longer term. The much-vaunted Brexit “reset” could prove only to be the first step in a much deeper process of integration that would involve, eventually, membership of the single market, the customs union and, in due course, the EU itself – and its single currency, the euro. OK, it might never happen but it is a strategic choice open to the British people (and pretty much reality for most of the past half a century).

All that a trade deal with America would mean, at best, is a selective lowering of most tariffs and other barriers, plus some mutual recognition of professional qualifications. That is in a different order of economic integration to complete free movement of people and capital. And, unless the UK becomes the 51st state, it is never going to be in the gift of any president to open up America to a foreign power in this way – let alone adopt the dollar.

It is from that deeper, more complete economic integration that the UK, which invented the single market, made such gains in investment and productivity during its EU membership – and which could be won again. Even if most of the EU is underperforming at the moment, that potential to expand “market share” in services remains.

Obviously, a trade deal with America would be more than nice to have. It would help to hitch us to what is still the planet’s most dynamic economy. If framed skilfully (keeping GM grains and those chlorinated chickens out), it would not raise serious problems with the EU reset, and it would help us sell more cars, Scotch, aero engines and much else.

However, most of the UK’s trade with America is in services, which Trump isn’t interfering with, so the additional benefit of a deal on goods – and the UK is no longer dependent on manufacturing – is limited. Trump has also shown himself to be an unreliable partner; he has, for example, just ripped up the deal he made with Canada and Mexico in his first term; and his habit of “linking” disparate policy areas, such as trade and “free speech” also makes any agreement more fragile than it needs be.

If there’s a useful US deal to be had, as Reeves suggests, then it should be taken up, just as the UK should with India and can continue to develop economic ties with China. We also have the distant prospect of yielding something from the deals with Australia, New Zealand and the Pacific Rim powers, such as Singapore and Indonesia, through membership of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

Post-Brexit, Britain needs all the help it can get to boost growth. The most promising prospect, though, is still with the countries closest to us – not only in distance but in shared values and culture, and now, a common need to bolster European security against an expansionist Russia. Our best friends are on our doorstep.