Brexit might have little or no impact on trade and the economy of the United Kingdom.
Therefore, those predicting economic doom from Britain’s exit from the European Union (EU) are facing disappointment. Prime Minister Theresa May is apparently implementing a Brexit strategy that will have little or no economic impact.
Simply put, Her Majesty’s Government is faced with three choices for Brexit. The choices are a return to hard borders; and 1960s’ style customs, a negotiated settlement with the EU, or ignore Brexit for trade.
Why Brexit will Not Impact Trade
May is apparently choosing the third option, The Financial Times reports. The Prime Minister wants a “customs union” that will encompass the British Isles.
The customs union will allow free trade between England, Scotland, Wales, Ireland, and Northern Ireland. Therefore, it will allow free trade between the UK and the EU; because Ireland is part of the European Union.
May is obviously trying to preserve the popular parts of Brexit; free trade and easy travel to the EU while accepting the popular vote for it. Under those circumstances, there will be no changes in economic relations between the UK and the EU.
Brexit is not about Trade
British voters are likely to accept May’s compromise because Brexit was not about trade.
The main issues motivating Brexit voters were immigration and funding for the National Health Service (NHS) not trade. The most popular selling point in the Brexit campaign was a pledge to reinvest the money the UK sends to the EU in the NHS.
The NHS is Britain’s beloved; and chronically underfunded, national health insurance scheme. Brexit promoters like Boris Johnson and former Ukip leader Nigel Farege spent most of their time talking about increasing NHS funding not trade. In particular, Johnson even rode around Britain in a bus to promote the idea.
Tellingly, May has revived Farege’s “Brexit dividend pledge.” For instance, the Prime Minister announced extra funding for the NHS, The New York Times reports.
The other big motivator for Brexit voters was dislike of the EU’s migration policies. In particular, conservative Britons disliked unlimited immigration from the Continent.
Brexit with Free Trade
May is trying to preserve the popular elements of Brexit while avoiding economic disaster with the Customs Union.
Britons will still enjoy cheap French wine from Aldi; without seeing Polish construction workers in Bristol, for example. Importantly, no British voter will be stuck in traffic at an Irish border checkpoint or wait in a customs line at Heathrow. Particularly there will be no lines of trucks at the Channel.
Obviously, May will have to convince the EU to go along with her scheme. Brussels will probably be reluctant to enter an agreement that gives Britain most of the benefits of EU membership for free.
Notably, European politicians will fear having to raise taxes for the EU to cover lost British income. Therefore, Britain might have to agree to pay something to the EU. A probable solution is a customs charge of some sort on British products.
There will be European pressure to go along with May’s suggestion to keep access to British markets. Only time will tell if that pressure will overcome support for the EU.
Why May Wants a Customs Union
There are compelling reasons for May to want to stay inside the EU’s economic sphere.
Scotland is May’s most pressing reason for preserving free trade. Markedly, Politco reports that 62% of Scots voted against Brexit. Additionally, nationalist leader First Minister Nicola Sturgeon has been using Brexit to advance her agenda of Scottish independence.
May’s fear is that a hard Brexit will lead to a Scottish exit from the United Kingdom. Northern Ireland could easily follow Scotland’s lead to avoid a “hard border” with the Irish Republic.
A customs union, or a “Brexit light,” solves May’s dilemma. There will be many complications from the customs union such as trade with nations outside the EU.
A problem for Brussels could be importers using Britain to get around EU customs restrictions. For instance, American or Chinese goods could be unloaded at Liverpool, and shipped into France or Germany via the Chunnel.
British labour and business could benefit from that increased trade. The European Commission; the EU’s governing body, will block it to preserve its power.
Will Brussels Reform?
Even with such complications, Brexit’s impact on trade is likely to be minimal. That presents the EU with a huge problem.
Countries like Poland are likely to consider a “British solution” and a customs union rather than full EU membership. To explain, Poland has its own currency; the zloty, so it can survive outside the Eurozone.
On the other hand, nations like France and Italy will stay in the Eurozone because they need the stability offered by the Euro. Countries like Spain, France, and Italy, went with the Euro because their currencies were worthless.
The EU may have to change its policies on issues like immigration in order to survive. My prediction is that Brexit will ultimately make the EU stronger by forcing new policies. Unfortunately, it is likely to take a long time and several more Brexit type exits to force the European Commission in Brussels to reform.
Under those circumstances, the UK will face a debate on whether to return to the EU. Therefore, the political crisis generated by Brexit is likely to last for a long time and offer no satisfying conclusion.
I predict that Brexit will produce no great economic impacts but it will change European and British politics dramatically.
