Britain’s trade relationship with the EU is needlessly dysfunctional
It would be easy to respond late to the string of Brexit supporters to admit that leaving the EU’s internal market and customs union was bad for the UK economy by saying ‘I told you so’. So here goes: I told you.
Relentlessly, year after year, evidence is piling up of the damage caused. Not only did the exchange rate decline after the referendum cause a painful shock, but aggregate trade has lagged behind comparable economies and business investment has been remarkably weak.
Is there a way to reverse this damage in the short to medium term? Unfortunately, the political toxicity of the UK’s relationship with the EU, and the Labor opposition’s tactic of being at least half as stubborn as the government at all times, means that removing barriers to the single market will be slow and patchy. expired. A Horizon Europe research program here, a labor mobility deal there, a veterinary deal somewhere down the road. And all subject to the EU’s useless aversion to blurring the hard line between the easy market access given to member states within its legal order and the hard border bureaucracy for those outside it.
The maddening part is that it is not the case that the UK has given in to mindlessly erecting trade barriers across the board. So far, the rest of British trade policy (the Prince-free parts of Hamletyou might say) is pretty sensible and for the most part pretty well executed.
The UK’s ability to run two trade policies under one government animated by different philosophies is astounding. At a World Trade Organization summit last week, British ministers and officials paraded their progressive free-trade internationalist credentials. Anne-Marie Trevelyan, Britain’s trade secretary, told the FT that other (unnamed) governments at the meeting had told her “how important British leadership is in supporting the values of free and fair trade in the rules-based order”.
At one point, the UK showed great independence of mind by being the last government to stand firm against a proposal to nullify a WTO agreement on intellectual property rights related to Covid vaccines. In this way it struck the somewhat paradoxical attitude of a lone fighter for multilateralist principles.
Outside of the WTO, Asia-Pacific is the UK’s preferred gang in world trade, where its attitude and behavior are quite healthy. In addition to the bilateral deals with Australia and New Zealand, digital agreement with Singapore has just entered into force and the UK is approaching an agreement with India.
In some areas, such as its willingness to embrace agricultural liberalization and tackle digital issues such as data flows in trade agreements, its activities mark a constructive change from EU trade policy. In others, including the eagerness to accept a weak trade deal from India rather than pursue the EU’s determination to get something more substantial out of New Delhi, it is a sign of geostrategic expediency driving trade policy.
However, in its non-EU dealings, the UK is generally proving to be a competent negotiator and constructive participant in line with the country’s internationalist free trade tradition. By contrast, dealings with Brussels since Brexit have been reactionary and harmful. The commitment to the international rule of law that it prides itself on in the WTO is completely lacking in its threats against the Northern Ireland protocol. His neurotic distaste for collaboration is childish and self-destructive.
A common Brexiter argument was that opportunities elsewhere would offset the shock of trade with the EU and ultimately outweigh the shock. It’s theoretically possible that this could still happen, or that the government’s hunt for domestic deregulatory Brexit dividends will turn into a substantial game at some point. But so far the net effect of the UK’s exit from the Customs Union and the Single Market has been very clearly negative.
The Asia-Pacific remains far away no matter how hard you squint. The UK’s dysfunctional relationship with its largest and closest trading partner far outweighs anything constructive it is doing elsewhere, including at the multilateral level. Again, I told you so.
The general weakness in UK business investment, including by domestic companies, and in trade with economies outside the EU is particularly striking. It suggests that it is not just the frictions with the continent that have hurt the economy, but also a general uncertainty among companies and the feeling that economic policy is in the hands of a government that does not know what it is doing.
A digital partnership with Singapore – which in any case does not have to be incompatible with EU membership of the single market – is fine. But it is no substitute for an open and constructive relationship with the trading area that left the UK so recklessly.