‘I negotiated with Trump on trade

For any Prime Minister, trying to weather an economic storm is difficult under any circumstances. It is unfathomably trickier when the financial tornado has been whipped up by the most powerful – and perhaps the most erratic – of world leaders.

So, in trying to plot a safe course for the UK’s money and markets, how should Sir Keir Starmer approach Donald Trump?

If anyone has any idea how to deal with the US President right now, it should be Sir Crawford Falconer. He became Britain’s Chief Trade Negotiation Adviser during Trump’s first term, dealing directly with US counterparts. He left the role just five months ago when his contract ended, after serving five prime ministers.

Although he was relieved when Trump unexpectedly made a partial U-turn last week by placing a 90-day pause on higher tariffs for all nations other than China, Falconer warns that things “could deteriorate” again.

“We’re by no means out of the woods,” says the 71-year-old New Zealander. “There are still lots of worries.”

Meeting The i Paper for tea in the Royal Exchange – the grand building next to the Bank of England which used to be the City’s trading hub but is now a luxury mall – Falconer says that Starmer has been handling the situation “as well as he can”.

He argues that the Prime Minister was wise not to retaliate with counter-tariffs, given the risk that he could “lose control” if Trump hit back again.

However, the trickiest decisions still lie ahead, and many of the biggest problems are outside British hands.

Should the UK rush ahead with a deal? 

Starmer has said signing a comprehensive trade deal with the US is a priority as long as terms are “in the national interest.”

Despite suggestions that the UK might be unable to escape Trump’s universal 10 per cent baseline tariff – applied to American imports from all nations – whatever happens, some insiders have speculated that a breakthrough on a deal could come soon.

Falconer believes that, under his own stewardship, the two sides were 60 per cent of the way towards a deal by early 2021 until Joe Biden replaced Trump in the White House and quietly stopped bargaining.

“The really tough stuff, we hadn’t dealt with,” he admits. “That’s always at the end, and it’s always a rough ride.” Nevertheless, he felt positive that an agreement could have been reached if talks had continued.

He never met Trump personally. But negotiating with the President’s team back then had its “eccentricities,” he says – hinting that British muddles over post-Brexit strategies didn’t help either – but at least “you had a game plan.”

“It wasn’t your bog-standard negotiation,” he reflects. “Without giving away the secrets, there are one or two things that would have probably ended up stepping outside the strict confines of what you would normally do in a trade agreement in order to land it.” He declines to elaborate.

This time, he is far less confident. “We’re in a different territory,” he laments. “It’ll be quite a different beast.”

Given the lack of coherence coming out of the White House – with even Trump’s own trade representative seemingly caught unawares by the President’s partial U-turn last week – Falconer does not “know whether it is even possible right now… to have an orthodox negotiation with them.”

Trump claims that about 70 countries are seeking to reach trade deals with the US. This raises a basic manpower question: Do the Americans have enough experts to haggle with so many countries at once? They are all seeking to beat his 90-day deadline when their tariffs could rise again.

“Even if it’s narrowed down to a priority list of 20 or so, I can’t see how there’s enough time to do all of that in three or six months, frankly,” says Falconer.

Even if the UK is at the front of that queue, he “can’t see how a quick deal is possible.” He explains that before tariffs can be lifted, the two sides must agree on rules of origin governing when goods count as British. This can be complicated because finished products often include materials or parts from elsewhere. “You can’t do it on a wet Sunday afternoon.”

At least the UK has one advantage: because its overall tariff was only 10 per cent to start with, this should not rocket upwards if a deal is not concluded after 90 days.

In fact, Falconer doubts that neither British negotiators nor any others are hurrying to sign anything while American policies and market reactions are still uncertain.

“Nobody’s going to do anything until they know what the hell he’s going to do next,” he says.

“Your classic position is: ‘I’m not negotiating under these circumstances because you’re holding a threat over my head. I don’t know what you’re planning to do with everybody else, so I’m not going to be a sucker and pay a high price to be the first mover. I’m not in a rush until I have a better idea of what your demands are and that if I do close a deal with you, you’ll stick to it.’”

His best advice for the Starmer? “Wait until the picture is a bit clearer, and try and be polite in the meantime.”

Instead of trying to secure a comprehensive deal, he believes it might be wiser to try striking quicker agreements on individual trade sectors. Perhaps that could involve pledging to buy more US oil in return for lower tariffs on higher-end cars made by the likes of Jaguar Land Rover, Rolls-Royce, Aston Martin, and Bentley, which are subject to a higher 25 per cent tariff.

Yet it is unclear whether Trump would countenance smaller deals, when he will want “phenomenal” achievements to show his supporters that all this turmoil has been worth it. “And phenomenal deals take time.”

Plying his trade

• Sir Crawford Falconer was born in Scotland, but his parents moved to Australia when he was a child and then on to New Zealand. 

• He moved back to the UK to study at the London School of Economics before landing the first of several jobs with the New Zealand government. He also worked at the World Trade Organization and the Organisation for Economic Co-operation and Development. 

• In 2017, Theresa May appointed Falconer as the UK’s Chief Trade Negotiation Adviser to handle non-EU deals after Brexit.
• He sealed a free-trade agreement with Australia in 2021 and oversaw Britain’s accession to CPTPP, a trade bloc that includes Canada, Japan, Mexico, New Zealand, Vietnam, and Singapore. 

The crucial points for any agreement 

If a comprehensive deal is possible, what might the biggest demands and red lines be for each side?

One of the most sensitive British concerns is that the US might insist on American healthcare firms being able to run NHS services or access patient data – or that the health service should lose some of its advantages in negotiating drug prices. Trump said in 2019: “When you’re dealing in trade, everything is on the table – so NHS or anything else.”

The UK has consistently rejected this. Wes Streeting, the Health Secretary, underlined in February that the NHS is “not up for grabs“.

Falconer is reassuring. “I get that people are concerned about it,” he says, “but the US doesn’t want to buy the NHS, and no UK Government is going to privatise the NHS.”

Chlorinated chicken is another controversial subject. Since Brexit, the UK has maintained a ban on importing poultry that has been rinsed with chlorine or other disinfectants. That is not because using chlorine is unhealthy, but because it’s believed that American producers wash their meat to compensate for it being processed in less hygienic conditions. The US would like the UK to drop its restrictions to allow for more American poultry imports.

Falconer is frustrated at how “fixated” some people are on this topic, when he thinks there are bigger obstacles. “That doesn’t mean to imply that we should surrender on chlorinated chicken, or that they will surrender on it,” he explains. But either way, he does not think a deal would suffer “death by chlorinated chicken.”

Perhaps the most startling suggestion has been that Trump wants the UK to abolish VAT, to reduce costs for American businesses, after the US labelled it an “unfair, discriminatory or extraterritorial tax“.

“I find it hard to believe,” Falconer says with a laugh. And if it is a serious demand, “I can’t see how the Government’s going to say yes.” However, he suggests the UK could examine whether foreign suppliers face greater costs and if those should be mitigated.

That leaves questions on where else the UK could give ground, hopefully in exchange for lower import costs on cars, pharamaceuticals and potentially for our steel.

Falconer argues the UK may choose to reduce or eliminate the sector-specific charges it imposes on internet companies such as Amazon, the Facebook owner Meta, and Google’s parent company Alphabet.

This could be highly contentious when these huge firms are so profitable, and while Government finances are so stretched. But Falconer says something has to give.

“Is the Digital Services Tax negotiable? The answer is: hell yes. We’ve been negotiating it for the best part of a decade, so it’s only a question of where you would settle on it… You could sort [that] out between adults if you chose to do so.”

Whatever could be agreed on in a UK-US trade deal, Falconer underlines that the British economy could still suffer a tremendous hit from the fallout from the American trade war with China. “That still has implications for all the rest of us, and it’s very difficult to see how that can be resolved quickly.”

It could cause higher worldwide inflation, increasing the prices we pay and reducing our real incomes; it could force the costs of borrowing upwards, making mortgages and other loans more expensive; it could push share prices down, reducing wealth and harming pensions; it could deter businesses and entrepreneurs from investing and creating more jobs until they are more confident about what’s going to happen next.

Falconer likens the President to a “caged tiger” because Trump might still want to activate higher tariffs on other nations after 90 days, no matter how dangerous and self-defeating that seems to experts.

If that happens, problems will surely begin mounting again for Starmer and Reeves, no matter what Falconer’s former old teammates negotiate.

@robhastings.bsky.social