For the United Kingdom, a free trade agreement with the United States makes sense not just from an economic standpoint but also from a political one. The United States is Britain's largest export partner and second-largest import partner of goods and services, accounting for about 20 percent of exports and 10 percent of imports. In addition, U.S. investors hold the largest share of foreign direct investment in the United Kingdom — a total of 253 billion pounds' ($316.9 billion) worth of FDI stock in 2014, according to Britain's Office for National Statistics. The value of FDI in the United States by British investors likewise reached 239.8 billion pounds that year, making them the largest pool of foreign investment for U.S. companies. Seeking a free trade agreement with the United States also would enable the government in London to demonstrate to voters and EU negotiators that the United Kingdom has options outside the Continental bloc.
Negotiating a free trade deal with the world's largest economy will be no easy feat, however. The United Kingdom cannot sign any such agreements until it has completed its departure from the European Union. Considering that London does not plan to formally trigger the Brexit until March — and EU treaties stipulate that the process should take at least two years — the earliest London could sign a free trade deal with Washington is mid-2019. Even negotiating a free trade deal before then would be illegal according to EU rules. The United Kingdom's prospects for a free trade deal with the United States, moreover, will depend on how London and Brussels settle their split. The British economy on its own is attractive enough for American investors, but its access to EU markets is certainly part of the appeal. U.S. free trade negotiators may wait until they have a firmer picture of the United Kingdom's future relationship with the European Union.
Negotiating a way to reduce, or even eliminate, tariffs between the United Kingdom and the United States should not be particularly onerous, considering that tariffs are already low, averaging 3 percent. But specific economic sectors could complicate matters. Many in the United Kingdom also fear that a free trade agreement could open the country's National Health Service to competition from U.S. firms. Washington, meanwhile, may be reluctant to open the U.S. economy to cars made in the United Kingdom. Nontariff barriers to trade could prove even more difficult to hammer out because the countries vary in their regulations and standards on a range of sectors, including food and banking. The British and U.S. governments would also have to agree on a mutually accepted mechanism to solve trade disputes. Even if trade discussions between the United Kingdom and United States make quick progress, ratifying a final deal could be a lengthy undertaking.
