After the historic Brexit vote, the UK faces an inflection point, as does the world itself. What Britain does in the next few months and years will have a big impact on the global economy.
We may choose to be timid about our future and limit ourselves to a muted conversation with the EU about our relationship, or we may strike a pathway forward, leveraging the opportunity Brexit offers, whether we wanted to be here or not. The much-vaunted sunlit uplands of peace and prosperity are accessible, but there is a mountain to climb before we get there. One foot wrong and we risk going over the cliff.
How can we manage this difficult and potentially treacherous climb?
We can take some comfort that there have already been a number of positive developments in the short period since the Brexit vote. Most importantly, the new administration has recognised the need to substantially beef up its trade negotiations not only with Europe but also the rest of the world by announcing the creation of both the Department of International Trade and the Brexit Department. The Prime Minister and others are meeting counterparts all over the world to reassure and to present a coherent vision and plan for the future.
But what should the government do next?
First, it must work out the game-plan for all necessary negotiations prior to triggering Article 50, aiming for a February/March 2017 timeframe.
Second, it should decide what future trade relationship it wants with the EU. In my view, a comprehensive Free Trade Agreement (FTA) would be best.
Third, it should develop a platform agreement with like-minded countries (the Anti-Distortions Agreement or ADA). The ADA would aim for open trade, competition on its merits, and property rights protection in all its members, but we must recognise that not every one of our trading partners actually believes in open trade, competition and property rights as the key pillars of economic growth.
So, fourth, we should work on bilaterals with key big emerging markets such as India, China and Brazil, recognising that we will not be able to get the same type of comprehensive agreement we are able to get with like-minded countries. In any negotiation with a country that distorts its market through state-owned enterprises or other government interventions, we must be especially careful that we do not score an own goal. To the extent that the troubles at the Port Talbot and Redcar steel mills were partly attributable to oversupply of steel caused by Chinese distortions, we cannot have a repeat of this by having a one-sided agreement with China. Similar considerations apply in India and Brazil.
Fifth, the precise nature of the FTA with the EU is heavily dependent on the other countries we will be negotiating with. The idea would be to bring together all the different negotiations at the same time (the EU FTA acting as a trigger for the other deals). It would be a fatal mistake to wait to negotiate until the EU deal is signed.
Sixth, one of the biggest opportunities provided by Brexit is the elimination of protectionism and subsidies in agriculture and fisheries. If we do this, our UK-EU FTA must take into account the effect of agricultural distortions in Europe and craft a mechanism to deal with them. Doing something like this would open up a host of developing countries for negotiations. The benefits to poor farmers around the globe and the world’s rural poor would be transformational. If we can end tariff escalation which keeps developing country farmers selling raw materials (such as cocoa) while developed countries pocket the gains of the processed product (such as chocolate), and allow these poorer farmers to rise up the value chain, that would significantly benefit these previously disadvantaged groups. Development NGOs would embrace such an approach as doing more to help these countries than any amount of classical aid.
Seventh, we should aim to enhance the Commonwealth by making it a genuine vehicle for trade barrier reduction, especially between its less developed members.
Finally, we should use the Brexit opportunity to consider new economic regulations and laws in the UK in key areas under the heading of a UK Productivity and Consumer Welfare Act. The aim should be for UK regulation to be as non-distortive as possible consistent with the regulatory goal. This could unleash enormous wealth in the UK economy.
These are just a few suggestions that paint a potentially bright picture if the UK has the courage, skill and wisdom to carry them out. One has to believe that a nation that has made such a disproportionate contribution to the arts and sciences, and that has contributed the rule of law, Shakespeare and the Industrial Revolution to the world, is capable of rising to the great challenge she is here presented with.