U.K.'s Bit Part in Trade Drama Shows Perils of Post-Brexit Role

(Bloomberg) -- The rise of beggar-thy-neighbor trade policies may weaken the U.K.’s hand when it seeks new deals after it leaves the European Union.

The government’s ambition to roll over the existing trade deals it enjoys through membership looks somewhat ambitious now that other countries are ripping up the status quo by slapping punitive tariffs on their partners. The U.K. risks being left with few friends in an increasingly protectionist world as the March 2019 Brexit approaches.

“It’s quite naive to believe that every partner will just be happy to sign up to exactly what it has with the European Union,” said Alan Winters, director of the U.K. Trade Policy Observatory at the University of Sussex. “The world is becoming a bit more aggressive. Britain is going to be in a pretty weak position.”

U.K.'s Bit Part in Trade Drama Shows Perils of Post-Brexit Role

For now, the nation has no voice in the mounting tensions since it can’t yet strike trade deals on its own. Its immediate fate lies in the hands of the European Commission, which leads talks on behalf of a bloc that Britain will soon depart. Brexit backers have long touted new deals as one of the key benefits of quitting the bloc.

Barack Obama, U.S. president when the U.K. was preparing for its Brexit referendum in 2016, said leaving would put the country at the back of the line for any new deals. Those words were derided as Project Fear by Brexit supporters, yet the surge of tit-for-tat trade retaliations since has cast his warning in a new light.

The U.S. and China, the world’s two biggest economies and countries that pro-Brexit campaigners cited as partners that the U.K. could have better deals with, have fallen into a downward spiral. President Donald Trump earlier this year slapped tariffs on Chinese goods, and the trade war has since settled into a regular rhythm of counterblows. The EU has also come under pressure from Trump.

“Even a year ago, there was so much being said about the ease with which we will strike a trade deal with the U.S., for instance,” said Anastassia Beliakova, head of trade policy at the British Chambers of Commerce. Now Trump has made “everyone much more aware about the need protect their domestic industries, and also cautious about the types of agreements they enter.”

Signs of detente in the conflict may not help. While Trump and EU Commission President Jean-Claude Juncker pledged last month not to introduce new levies as long as negotiations to lower trade barriers are ongoing, the U.K. may find it harder to defend itself without the backing of the other 27 EU countries.

“If you’re just the U.K. retaliating, it’s never going to have the kind of impact of when the EU retaliates,” said Swati Dhingra, an economist at the Centre for Economic Performance. “You’ve got to have economic power.”

U.K.'s Bit Part in Trade Drama Shows Perils of Post-Brexit Role

More fragile economies like Turkey and Iran have been targeted by Trump with tariffs and sanctions, and have had little recourse to respond.

In September, Bank of England Governor Mark Carney said leaving the EU would at least temporarily reduce the openness of the U.K. because any replacement deals with other trade partners will take time to be agreed and even longer to have an impact on the economy. Brexit, he said, was an example of “stepping back in order to jump better.”

“The positives are enormous if we take the right decisions when we leave,” said Iain Duncan Smith, former Conservative Party Leader and Brexit supporter, on Bloomberg Television on Thursday. “It gives us a great ability to enhance our trade, not just with the European Union but the rest of the world.”

But there may also be more economic pain as those deals are thrashed out.

“Trade agreements can be struck fast, in just over a year, but they can take a very long time as well – seven, eight years, if not longer,” Beliakova said. “It depends on what the priority is: is it quickly signing a deal, or comprehensively protecting your offensive and defensive interests?”

U.K.'s Bit Part in Trade Drama Shows Perils of Post-Brexit Role

©2018 Bloomberg L.P.