How important is the ‘special relationship’ for the UK economy?

16th March 2012

There have been a number of unexpectedly positive economic reports from the US over the past week. Most recently, US retail sales saw a significant improvement: "Sales at U.S. retailers grew at the fastest pace in five months in February, as spending increased at auto dealerships, gas stations and clothing stores. Retail and food service sales increased 1.1% from January to a seasonally adjusted $407.81 billion, the Commerce Department reported Tuesday. Sales were up 6.5% year-over-year."

There was also good news on non-farm payrolls, which were ahead of expectations. The news prompted the Federal Reserve to issue a more optimistic assessment of the outlook for the US economy, saying strains in financial markets have eased. Equity markets responded buoyantly with the Dow Jones industrial average surging back above 13,000 to highs not seen since the credit crisis.

As a result, it would seem to be a good time to be reminding the US of the ‘special relationship' that exists with the UK. Prime Minister Cameron is currently in the US, glad-handing with President Obama and the special relationship seems up and running. Mr Obama said of the prime minister: "I trust him. He says what he does and he does what he says. I've seen his character. I've seen his commitment to human dignity during Libya." The relationship between the US and the UK is the strongest it's ever been…Our alliance is essential – it is indispensable – to the security and prosperity we seek not only for our own citizens, but for people around the world." The pair appears to have agreed on everything from military strategy to the economic agenda.

However, right and left-leaning thinkers continue to believe that the relationship is one-sided. For right-learning thinkers, the solution is to shout louder in Washington: "It is high time that our Prime Minister politely, diplomatically and yet firmly made it clear that Britain expects, requires and needs more from the Special Relationship with the United States, and in a tangible way that will benefit the average man or woman on the Clapham Omnibus."

For left-leaning bloggers, the key is to forge closer ties with Europe. For example, many thought that the UK's relationship with the US might be a casualty of its isolation in the Eurozone: "Michael Calingaert, an expert at the US Brookings Institution on the EU and transatlantic relations, believes that Britain's influence will inevitably be diminished. "The notion that Britain was a bridge between the US and Europe was probably overstated somewhat. But now that Merkel and Sarkozy are running the show it is inevitable that Berlin and Paris will be more important [to Washington] than London. The US will look far less to the UK as an interlocutor."

Certainly influential parties in the US believe that the UK is not the key economic relationship in Europe. David Rothkopf at the Carnegie Endowment says: "It must be acknowledged that most important US relationship with Europe today is with Germany. Germany is the lynchpin to a European economic recovery that is essential to the recovery of the global economy. As an abstainer on the Libya UN vote, it has actually gained leverage, now being seen as more key to truly sustainable initiatives. It has greater leverage with the rest of Europe and with Asia.

Some go as far as to argue that the relationship with the US has been actively destructive for the UK economy: "This reflects growing concerns that the close links with America are actually detrimental to British interests.  Economically for example, the close ties between the American and British economies and stock exchanges meant that the UK was far worse hit than any other European country when the US entered recession in 2007."

The US remains one of the UK's most important trading partners. As such, the fortunes of the two economies are married, whether a ‘special relationship' exists or not. It is unlikely that the special relationship adds much, but it is clearly more useful to be on good terms with the US political elite than not. It is difficult to disagree with RothKopf's conclusion: "As useful as interpersonal international ties may be, the really important special relationships are between countries, based on national needs, and not between people, based on personal affinities"

 

More from Mindful Money:

Will the US housing market finally turn for the better and kick-start the economy?

Is the US economy floundering or regenerating?

US broad money growth moderates, business holdings still soaring

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