Having been denied the post-vote slump they forecast last year, economic Eeyores spend their time these days pooh-poohing Britain’s post-Brexit prospects, reserving their strongest scorn for the prospect of the UK making trade deals with other countries. But the Square Mile should be optimistic about the future, for four reasons.
First, one reason that trade negotiations elsewhere take a long time is the need to agree standards across a bewildering array of detailed points. While we may diverge from the rules set by our former partners in union over time, on the day that we leave, we will have a set of trade standards identical to the EU’s. That facilitates a sizeable shortcut on the small print aspects of deals with many third countries, and the EU itself.
Second, countries that become available for a trade deal overnight are usually emerging from sanctions, or out from under repressive regimes. The UK is a mature economy, relatively wealthy, with a good credit rating and record of paying our debts.
We’re a liberal democracy, with the rule of law, possessing both a judiciary and a political class which are generally not corrupt. We are English speaking, we have a relatively highly skilled and educated workforce, we are generally respectful of copyright, intellectual property, trade mark and patent, with many actively choosing this jurisdiction for the resolution of their disputes.
We have significant regulatory capacity too (indeed, we will have to watch the appetite of our regulators to expand and gold plate things post-Brexit).
These qualities make us a good prospective trade partner, but we can’t presently make deals with other countries. The EU reserves unto itself the exclusive right to negotiate trade deals. That’s fine for nations such as the 10 central European accession countries, for whom the EU was a big market expansion.
But for the UK, a trading nation with established export relations, hobbling our ability to enter into any trade deals with the rest of the world – which is growing much faster, everywhere, than the EU – has stymied prospects for growth. We are still EU members, but given that we are leaving, we can now start preliminary talks: even Michel Barnier concedes, how can you stop people talking?
The third reason is that many players within the EU are dependent on finance obtained through London and, for them, disrupting the flow of that finance is very undesirable. Ensuring the continuity of that provision is why Barnier talks about a “special” deal for the City.
The last reason for optimism is obvious, but must still be said. Countries don’t trade; individuals and businesses do. As a US southern governor told a Westminster audience last week: “British businesses invest hundreds of millions of dollars in my state; it’s been going on for years. You know how many British government officials I had to see for that to happen? None. Met my first one today.”
That trade will continue regardless of whether deals are done or not. We are good at it. As many people know, the Americans are our largest investor. As fewer realise, we are theirs, too. Every day, a million Brits go to work for an American company, while a million Americans work for a British business, too.
This makes people wonder about freer trade with our most important trading partner. Critics suggest that President Trump sees negotiation as a zero-sum game: he wins, you lose. Perhaps he does. But this is to miss the benefit of greater, freer trade per se.
The Single Market is really a protectionist customs union, which keeps out goods from outside and keeps prices high, helping European producers which could otherwise not compete against cheaper, more efficient external providers. Tariffs raise our prices internally above world prices: our consumers are worse off.
As professor Patrick Minford argued in a recent publication for Politeia, the US is the lowest cost available source for almost all food products, many manufactured goods, furniture, printing products and the machinery market. US products could replace products now bought at above world prices from the EU. So a lopsided Free Trade Agreement, and even unilateral free trade with the US, would be in the UK’s interests from the consumer perspective.
Others – from dynamic free trading economies like Singapore to the Commonwealth countries and English speaking nations with which the UK enjoys longstanding connections – want the chance to trade more freely with the UK, too. The future is bright, no matter what the old grey donkeys tell you.