Today is without doubt momentous. It heralds the biggest strategic and economic change the UK has seen since WWII. Acheson’s comments in 1962, following the decolonisation that characterised the post-war period, are particularly resonant:
“Great Britain has lost an empire and has not yet found a role. The attempt to play a separate power role — that is, a role apart from Europe, a role based on a ‘special relationship’ with the United States, a role based on being head of a ‘commonwealth’ which has no political structure, or unity, or strength — this role is about played out.”
Britain’s response then was two-fold: forging a closer alliance with the US and moving to join the Common Market to secure the economic clout of the world’s largest trading bloc. Membership allowed Britain to punch well above its weight, to enter into trade agreements with much larger countries, to take up its position in the UN Security Council. The delivery of the Article 50 letter throws all of that into jeopardy.
A marked departure
It starts the UK along a path that looks likely to lead to the hardest of Brexits – loss of access to the single market and the customs union. And that loss of access to the multilateral trade deals we have been part of as an EU member is, without doubt, significant. In anyone’s book, a multilateral trade deal trumps a bilateral deal – it offers wider market access, a deeper bargaining pool and simultaneous benefits. Bilateral deals are always a poor second. But that’s the option we’re faced with.
It is somewhat ironic that the UK Government’s decision to trigger Article 50 and commence the formal process of withdrawing from the EU should occur in the year that marks the 200th anniversary of the publication of David Ricardo’s treatise concerning the immense value of open trade.
The loss of free trade between the UK and the EU will be one of the greatest and most traumatic casualties of Brexit. Whilst the initial divorce may take 2 years, transitional agreements and the quantity of issues will, in my opinion, mean that it will be closer to 5 or even 10 years before a trade deal between the EU and the UK is thrashed out, causing significant fallout for businesses trading with our largest market.
Where are the opportunities?
In the meantime, there will be intense focus on the non-EU trade deals that the UK will seek to negotiate. So where are the opportunities? Well, ironically, those non-EU countries that hold the greatest promise are those in the fastest growing parts of the world, with a burgeoning middle-class and improving living standards – all as a result of free trade. More specifically, the countries in South East Asia, Taiwan, Indonesia and of course China.
It is perhaps a given that the UK will seek initially to connect with the nations of the Commonwealth. Indeed, we have already seen Trade Secretary Liam Fox pressing the flesh at the inaugural meeting of the Commonwealth Trade Ministers earlier this month. If we consider those nations, India appears most promising, given its purchasing power parity with our own. But here’s the rub. Negotiating a bilateral deal when you’re a small country is tough, it requires compromise. The compromise may well be free access for Indian students to the UK, an issue that’s already created friction.
By implication, leaving the EU means that the UK has given up some of its global pretensions and accepts that it needs to be a dynamic independent country, freed of the responsibility of somehow ‘managing’ the world. Retaining what has made it successful, however – a dynamic, flexible economy, open to flows of people, ideas and investment – may mean it disappoints some of those who voted for Brexit, as it is unlikely to lead to a sharp reduction in immigration. Ironically, only failure may do that.
But that’s a whole new issue. Today, we are where we are. And in true British bulldog fashion, Theresa May has called for the UK to “look forward with optimism and hope and to believe in the enduring power of the British spirit,”. So, looking optimistically, the UK remains a dynamic, growing economy, with a low regulatory framework and a strong centre for foreign direct investment. But we are all going to have to draw on that British spirit to tackle the challenges, not just of Brexit, but of low productivity, housing shortages, lack of investment in education and healthcare and an ageing population.
The triggering of Article 50 is the start of a process that will require us all to work harder, make compromises and retain our open outlook in the face of political, social and economic turbulence.
To hear more about Trevor’s thoughts on post-Brexit Britain and its place in the global economic order, contact him at email@example.com