Rishi Sunak presses Joe Biden for a trade deal — just not the one the UK wants most

Rishi Sunak presses Joe Biden for a trade deal — just not the one the UK wants most
Опубликовано: Wednesday, 12 April 2023 04:24

A narrow pact on critical minerals promises to protect Britain’s car and truck exports from the US Inflation Reduction Act.

LONDON — Rishi Sunak is angling for a U.K.-U.S. trade deal with President Joe Biden this week — just not the big one Britain bargained for.

The Biden and Sunak administrations are edging toward a narrow trade pact on critical minerals — used to make everything from electric vehicles to solar panels, flatscreen TVs and pacemakers — as Biden visits the U.K. to mark the 25th anniversary of the Good Friday Agreement.

The deal promises tax relief to help Britain’s car and truck exports swerve the heaviest hit of the president’s £400 billion in subsidies for American-made electric vehicles in his Inflation Reduction Act (IRA). The U.S. is Britain’s second-largest market, behind the EU, with car exports alone totaling £4.9 billion last year.

Biden’s law, passed last summer, is meant to bring clean energy and automotive manufacturing to the U.S. and decouple electric vehicle supply chains from slave and child labor found in China’s electric vehicle batteries. Beijing controls up to 90 percent of the refining and processing of critical minerals used in those batteries globally like lithium, nickel and cobalt.

But the president’s plans in the IRA pose “very serious challenges” to British automotive exports, says Jaguar Land Rover. The law bars nations without a U.S. trade deal from accessing the law’s tax credits and subsidies.

Sunak’s business secretary Kemi Badenoch has taken a swipe at the IRA calling it “protectionist” and warning it will hurt the competitiveness of allies. She argues it could also create a “single point of failure” in key supply chains that won’t help the U.S. counter the rise of China.

Yet Japan swerved around the law late last month when it struck a narrow trade deal with the U.S. for its electric vehicle industry’s critical mineral supply chain. The EU is in talks with Washington for something similar. These narrow trade deals on critical minerals don’t require congressional approval and are enough to meet the legal threshold for a trade deal, experts say.

Britain is “in discussions” with the U.S. for a similar pact, said a U.K. trade and business department official. “We’re optimistic that something will get done in the near future,” the official added. “If you look at recent history, Japan is always first. We should follow soon.”

Deputy U.S. Trade Representative Jayme White was in London at the end of March working to push forward the deal. It will be much smaller than the post-Brexit trade deal Donald Trump started negotiations for and Biden then quashed at the start of his presidency in 2021 when he changed tack on trade.

During Biden’s visit this week Britain will lobby to get a series of trade dialogues between the two countries back on track, Bloomberg reported late last week. “We’re ready to do an [free trade agreement] when the US is ready to do so,” said the same U.K. official quoted above.

Still, the critical minerals deal is the priority. Asked if the narrow deal is close, a diplomat from a U.K. ally said: “Yep — so we hear.” Yet both U.K. and U.S. officials downplayed those talks, saying they are not that advanced.

On a flight to California to meet Biden early last month at the unveiling of a plan to build submarines alongside Australia, Sunak said he and the president need to “work through” how the IRA is implemented.

It is “important that the U.K. is included in any U.S. relief, particularly if the EU and Japan are,” said Sam Lowe, a partner at Flint Global and expert in automotive market access.

Failure to strike a deal with the U.S. “could magnify the negative impacts of the IRA,” he added, as other countries would become “relatively more competitive than the U.K.”

Japanese lesson

A draft of the U.S. Treasury’s guidance published last month explains that Japan’s automotive sector qualifies for the IRA’s electric vehicle tax credit. The U.S. Treasury’s language “leaves some wiggle room for countries that [the U.S.] would wish to include,” said Anna Jerzewska, director of the consultancy Trade and Borders.

Time is ticking with the final document set to be published next Monday, April 17. The U.K.’s Department for Business and Trade did not respond to questions about whether it will need to strike a deal beforehand.

“We are engaging closely with the U.S. administration to address serious concerns about the IR Act,” said a government spokesperson, adding the U.K. is also “talking to our friends and allies across the world who are similarly affected, and will continue to robustly defend the interests of U.K. industry.”

Striking a deal with the U.S. and Britain’s allies on critical minerals must be “prioritized,” said Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders (SMMT), “to avoid us being put at a competitive disadvantage.”

But deals to secure critical mineral supply chains, he said, “only work if they facilitate access to key production inputs, reduce tariff and non-tariff barriers, and provide additional certainty to investors.” These pacts aren’t a panacea, he added, and just one part of “the automotive ecosystem and we need wide-ranging measures to ensure the U.K. is globally competitive.”

The U.K. doesn’t have its own deposits of these minerals or processing capacity and has been scrambling to diversify its supply chains after the U.S. law caught officials off guard last year.

Just last week U.K. Minister for the Indo-Pacific Anne-Marie Trevelyan inked a pledge to secure supply chains of critical minerals with Australia’s minister of resources, which boasts the world’s largest supply of lithium. The U.K. and Canada also signed a partnership on critical minerals last month.

The U.K. has been learning from Japan how to diversify its critical mineral supply as the country holds the G7 presidency this year, two people familiar with the talks told POLITICO.

Critical minerals are an issue where the G7 members are talking about “friend shoring,” said a person familiar with the talks. They acknowledged Japan has been leading conversations ahead of the G7 Summit in May about creating a buyers club for critical minerals among the economic group’s members.

Tokyo has learned from experience how to diversify its supply chains after China cut off its access to critical minerals exports following the 2010 arrest of a Chinese trawler fishing in Japanese waters.

“The U.K. is playing a central role in discussions,” said a second person, “and working very closely with our allies in Japan.”

Stefan Boscia contributed reporting.

This story has been updated to include further commentary from the U.K. government official.

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