Goodbye Britain, Welcome to a New World of Brexit Pain
(Bloomberg) -- It wasn’t just the great British public that was desperate to finish off Brexit. Europe too, it appears, is keen to move on.
A brief survey of continental newspapers this week found a few mournful valedictions ahead of the U.K.’s long-planned departure from the European Union at midnight on Friday, Brussels time. None showed any understanding for the decision, focusing instead on what lies ahead.
Brexit marks the first time the postwar alliance has lost a member, and one of its three largest economies to boot. Yet the emphasis was very much on the challenges for Britain rather than the continent. The coverage could be dismissed as irrelevant to the U.K. now, except that away from the British talk of selling more to the U.S. and China, European nations account for eight of the country’s 10 largest trading partners.
On the eve of Brexit, Paris-based daily Le Monde reported that French companies have “finished grieving over the U.K.” Brexit is happening, and what matters is the future relationship, it said. Dutch paper De Volkskrant, meanwhile, ran an interview with a pro-Brexit businessman under the headline “British people have to start making stuff again.”
Much time and energy has been expended on the Sisyphean process of Brexit since voters opted to quit the world’s biggest trading bloc in the 2016 referendum, against the advice of the Conservative government, the Bank of England, the International Monetary Fund and then President Barack Obama. Far less has been spent on what comes now that it’s finally out the door.
For Prime Minister Boris Johnson, emboldened in his Brexit path after a resounding electoral victory in December, the goal is a “Global Britain,” able to pursue trade deals on its own terms without recourse to Brussels and the EU’s now 27 member states.
That will entail hard choices, as shown by the Johnson government’s decision to refuse U.S. demands to cut Huawei Technologies Co. out of fifth-generation wireless networks.
Putting to one side the practicalities of the U.K. plowing its own furrow untethered from the EU at a time of great power rivalry between the U.S. and China, the challenge will be to devise a whole new set of political and economic priorities for trade negotiations to succeed.
Britain needs to develop “a clearer idea of what it wants its freshly independent trade policy to achieve,” Sam Lowe, a senior research fellow at the Centre for European Reform in London, wrote in a blog post. “Trade agreements should be more than just political trophies,” Lowe said. “They should have a purpose, whether economic or geopolitical, and work as an extension of overall government policy, not in isolation.”
President Donald Trump has repeatedly said that he is keen to strike a U.S.-U.K. trade deal. For Johnson, however, the consideration is not just economic or financial, but one of how close he’s prepared to move on issues such as Iran. Trump has shown willingness to weaponize trade to get his own way.
Johnson is expected to open trade talks with the U.S. before beginning negotiations with the EU, the Telegraph newspaper reported this month. But for Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington, the U.K. government’s commitments to maintain bans on U.S. hormone-treated beef and chlorinated chicken and stick with the EU on preserving Iran’s nuclear deal “have undermined the prospects for a meaningful free trade agreement,” he said in a PIE blog.
Johnson must also balance Trump’s open belligerence toward China and the desirability of forging a bilateral economic arrangement with Beijing, currently the U.K.’s No. 4 trading partner.
Then there are complex relations with the former colonies and territories of the British Empire including India, Canada and Australia. While Anglophone, they’re not rushing to do the U.K. a favor. Russia and Turkey, meanwhile, could try to extract political concessions as they flex their muscles respectively and jointly in the Middle East and North Africa.
Japan has among the closest economic ties to the U.K. of any foreign power and remains bemused by Brexit. It stands to suffer costs through the 1,000 or so Japanese companies employing about 160,000 people in the country. They include Nissan, which runs the U.K.’s largest car factory in the Brexit-supporting northeast of England.
All these relations must be navigated anew, favors granted or demands resisted. That will require domestic compromises and trade-offs for which the British public is hopelessly ill-prepared, according to the CER’s Lowe.
Johnson won the 80-seat majority that allowed him to break the parliamentary deadlock over leaving the EU by repeating that a vote for the Conservatives was a vote to move on from Brexit to domestic issues such as health and services that matter most to the electorate.
Europe remains key to the economic success of the project. Germany is the U.K.’s biggest trading partner, but for how much longer is as much a political decision as an economic one that, to a large extent, lies in Johnson’s hands.
German magazine Der Spiegel this week reported on new figures showing that exports to the U.K. in January to November last year dropped 4% over the same period in 2018. Overall, the U.K. slipped from Germany’s fifth-biggest trade partner to seventh. What's more, that happened as sales to elsewhere in Europe rose, meaning that Germany is less reliant on the U.K. market.
Indeed, the survey by the DIHK trade chambers found that every fifth German business in the U.K. is retrenching, seeing no option other than to cut jobs. “The economic fractures are already visible,” DIHK President Eric Schweizer told Spiegel.
The historic breach that is Brexit may be just beginning, but the effects are already playing out.
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