Exclusive:John Swinney must fund green industrial strategy, think-tank urges, as US trade deal benefit 'minimal'

Chancellor Rachel Reeves was in Washington this week where she discussed a trade deal with the US

A US trade deal would have “minimal impact” on jobs and growth in Scotland, a prominent economic think-tank has warned, as SNP ministers were warned to stop stalling and commit to a green industrial strategy next month.

First Minister John Swinney faces extreme financial pressures as he prepares to set out his Programme for Government - policies that should outline how the Scottish Government intends to grow the economy - on May 6.

Chancellor Rachel Reeves meanwhile met her US counterpart in Washington on Friday as she attempted to make progress on a trade deal between the UK and the US. The UK government hopes an agreement will mitigate the impact of tariffs imposed by US president Donald Trump at the start of this month that rocked financial markets and sparked fears of a global downturn.

Rachel Reeves in Washington DC. Picture: Getty Images | Getty Images

However, Stephen Boyd, director at think-tank IPPR Scotland, claimed any such trade deal would not immediately offset the damage. He said both the UK and Scottish governments were set for some difficult decisions.

Speaking exclusively to The Scotsman, Mr Boyd said a UK-US trade deal was “unlikely” to lead to a surge in investment and jobs.

He said: “There has been much talk about a looming trade deal with the US, but, contrary to much of the political signalling, this is likely to have, at best, a minimal impact on jobs and growth.

"The potential economic benefits of bilateral trade agreements are routinely overstated; often by those who argued such agreements would compensate for the loss of the deep economic integration provided through EU membership. Rarely are trade agreements transformational in economic terms, especially for nations at the UK's stage of economic development.

"It might be a statement of the obvious, but whether Scotland is a net beneficiary from a future UK-US deal depends on the terms of that deal.

“The US is Scotland's single biggest export market. Should the deal include tariff free entry for key Scottish exports such as whisky and salmon and provide new opportunities for the financial, business and professional services in which Scotland excels, and which are likely to form an increasingly large share of international exports, then, yes, Scotland could benefit.

"But these outcomes are by no means certain. And although some sectors may do well, a UK-US trade deal is highly unlikely to result in a surge in investment and jobs in aggregate terms. Even if a deal is struck, Scotland and the UK will still be damaged by the slowdown in global growth and disruption in global trade provoked by Trump's chaotic policymaking.”

Britain has been hit with a 10 per cent tariff on all exports to the US, as well as a 25 per cent levy on cars, steel and aluminium.

The Trump administration has been interfering in UK affairs in a way that suggests our 'special relationship' with the US is over (Picture: Andrew Harnik) | Getty Images

Ms Reeves has insisted there is “a deal to be done” with Washington, despite suggestions from senior US officials that Mr Trump regards the 10 per cent tariff as a “baseline” he is unlikely to go below.

Mr Boyd argued the main focus for the government should be on what it can control, specifically delivering an industrial policy that addresses the issues facing the UK, and for Scotland, big announcements in the Programme for Government.

He said: "Problems are piling up week on week for both the Chancellor and [Finance Secretary] Shona Robison.

“The Chancellor needs to hold her nerve at least until the Autumn Budget. Further cuts to public spending in response to what are - by now quite transparently - highly uncertain forecasts would be wrong and damaging. Premature fiscal consolidation risks plunging the UK into a doom spiral of cuts begetting lower growth begetting further cuts and so on.

“Rather, the government should focus on what it can control by, for instance, cracking on with development and implementation of an industrial policy of sufficient scale and ambition to meet current challenges.

“Although it can’t affect economic performance in the shorter term through monetary and fiscal policy, the Scottish Government should use the Programme for Government on May 6 to spell out how it will use significant devolved powers to start nurturing an economy fit to meet not only current pressures, but also the great demographic, environmental and distributional challenges of the current century. As a start, it should set out how it will at last start to build some momentum around the green industrial strategy published last year.”

Mr Boyd’s comments prompted SNP Westminster leader Stephen Flynn to claim the UK economy was in a “doom loop”, and Scottish Labour MP Brian Leishman to demand bolder policies.

Responding to the IPPR warnings, Mr Leishman, the MP for Alloa and Grangemouth, reiterated calls for a wealth tax.

He said: “[A total of] 14 years of austerity, then a global pandemic that accelerated inequality and then a cost-of-living crisis, have immiserated the British working class and what the Chancellor needs to do is to embrace real change, meaning bold policies that will redistribute wealth across society.

“That means altering the self imposed fiscal rules that are limiting what the government can do to genuinely improve people’s living standards.

“Domestically, we need to reject the politics of austerity, which have had lethal consequences for communities. Internationally, we need to stand our ground and not embark on the appeasement of Donald Trump. It’s by standing up to bullies that you gain respect.”

Mr Flynn, the SNP Westminster leader, rejected the notion a US deal should be the priority, urging ministers to instead agree closer ties with Europe.

He said: “The UK economy is stuck in a doom loop and these latest warnings only serve to reinforce that continued reality.

“The failure to bring down energy bills, the acceptance of Brexit, the increased tax burden placed on business and the cosy fiscal straightjacket Labour have wrapped themselves in have all served to show that change remains a slogan in search of substance.

"The destructive introduction of tariffs compound the misery. But let’s not fool ourselves into believing that any deal with the United States is going to trump closer alignment to Europe and access to the world’s largest single market.

"Labour are right to say that the world has changed, but the only rational response to that is to change course with it and seek economic and energy security with our reasonable and reliable allies in the European Union.”

A UK Government spokesperson said: “Our economic relationship with the US supports £315 billion of trade and over £1.2 trillion of investment, with a million Americans working for UK-owned businesses and vice versa. We continue to negotiate a wider economic deal with the United States that works in Britain’s national interest – an approach we take to all trade deals with other economies.

“In a changing world we are also going further and faster on our work to strengthen the UK’s economy at home – including through investing in our defence, bringing forward our own Industrial Strategy and cutting excess red tape - to deliver security for working people and put more money in their pockets as part of our Plan for Change.”