When the UK voted to leave the European Union, in a divisive in/out referendum promised by the former prime minister David Cameron, the decision fed many fears regarding the economic outcome of ending many strategic partnerships, practically overnight. For some, London as a financial centre’s business interests were more in danger than at any time before, including the 2008 crash. For others it was a major growth opportunity, free of import/export regulations on business relationships outside the EU.
To the ‘remainers’ these fears were legitimate. Nearly half of Britain’s trade is with EU countries. Not only had a risky decision been taken but there was no clear ‘road map’ to frame the new partnerships. When the ‘Brexit’ letter was signed by the British prime minister and delivered to Brussels no one really knew what the outcome would be. For the ‘leavers’ the result was clear. Britain was now free to conclude trade treaties with its Commonwealth ‘cousins’ and the USA and China without the restrictions of EU law.
Now we know that Britain will formerly leave the EU on March 29th 2019 and there will be a further transition period until 2020. We also know that the British government is negotiating for a trade deal to remain in the EU customs union without subscribing to EU federal law (and will lose its voting rights in the process). Nevertheless, almost two years down the line many questions are still asked about the ‘political earthquake’ of 2016.
In a recent book in Arabic entitled in English ‘What do you know about Brexit?’, Mohammed Sadek Ismail explains that the EU has no interest in imposing customs barriers on British exports, considering the EU to be the winner in the balance of trade. So, it is in the interests of Brussels to make new agreements with London instead of trying to punish Britons over their ‘divorce decision’.
Dr. Ismail, who leads the Arab Center for Political and Strategic Studies, emphasises that the UK used to pay £19 billion as a yearly contribution to the EU, but London was getting also £10 million back, through rebates on ‘agriculture support. Britain will pay a still lower amount, only £3.5 billion, per year, after Brexit, in order to retain access to the common market.
Britain can pay £3.5 billion and avoid the colossal contribution of £19 billion, while the EU, which was getting £9 billion, will lose £5.5 billion, on a yearly basis, in its new partnership with London. However, Brexit will not only affect the commercial ties between the UK and the 27 members of the European Union. The divorce may also affect its relations with other countries across the globe as she was a privileged partner of many countries worldwide thanks to her membership of the EU.
An influential argument by the ‘Vote Leave’ campaigners was that Britain was contributing £350 million a week to the EU, money which after Brexit could be used to provide more funding for social services such as the NHS (National Health Service). However, data provided by the Office for Budget Responsibility reveals that there will be no saving in the first five years. It is also noteworthy that Britain has to pay the ‘leave bill’ which will reach £37.1 billion, and this ‘expensive cost’ will continue to be paid until 2064. So, Britons will have to wait a long time before enjoying the fruits of their decision.
The aftershock of Brexit is already being felt. According to statistics, the British economy grew more slowly than expected in the three final months of 2017. Furthermore, GDP (Gross Domestic Product) was revised down to 0.4% from 0.5%. On the other hand despite internal shrinkage and partly due to a weaker pound exports have risen and continue to rise.
The Organisation for Economic Co-operation and Development, forecasts that the British Economy will grow by only 1.2% this year, putting the country at the bottom of the 7 largest advanced economies in the world (China, U.S, Germany, Japan, Italy, France, and UK).
Meanwhile, although the level of unemployment has significantly decreased to its lowest level since 1975 (4.4%) inflation rose to 2.6% in 2017 from only 1% in 2016. This reduced the average purchasing power of households by about 0.5%.
Although the weaker pound may have supported export growth it has made foreign imported products more expensive and increased the cost of overseas travel and foreign holidays.
If the effect has not been as bad as feared it is because Britain has always maintained a cautious distance from the European Union on the Euro and the Schengen Agreement. Britain never joined the Eurozone and as a result has maintained control of its own interest rates. Also by not joining the Schengen Agreement the country maintained control of its own boundaries to a greater degree than its continental neighbours. Britain was a comparatively late entry to the common market, joining in 1973 (the Treaty of Rome was signed by the original six members in 1956) and signing the Maastricht Treaty which inaugurated the Union in 1992, following a national referendum.
Despite the upsetting warnings, the director of Lille’s School of Trade in France, Eric Dior, tells the Belgian website rtbf.be that Brexit has not had a worrying negative effect on the British economy. Investment is still flowing but no one knows what will happen in the long term, especially since the trade partnerships with the European Union have not yet been defined and are still under negotiation.
Faced with this situation, the British prime minister sees that the UK post-Brexit economic partnership with the EU has to be deeper than any free trade that presently exists. But if Britain succeeds in getting those privileges, it might offer a reason for other nations to leave the EU. Some far right parties such as France’s National Front and some regions, such as Catalonia in Spain have already expressed such a wish. Nothing could be further from the EU’s wishes than an agreement on favourable terms for a British Brexit encouraging other regions to demand the same.
This policy is clearly expressed by the German chancellor Angela Merkel who says that Britain should not to expect the same rights as EU members after departure but that the post-Brexit deal should be "as close as possible, but different to what Britain currently has as a member". Britain should not be entitled to ‘cherry pick’ (i.e. take what suits it best and leave the rest).
Belgian media has warned of a ‘catastrophic scenario’ for EU countries exporting to Britain when Brexit comes into force after March 29th 2019. Belgium exports many products to Britain, including vehicles, shoes, drinks, fruits and vegetables. In future, those goods are supposed to pay customs tariffs. This will also apply to France and other members of the EU and of course vice-versa for British exports to Europe .
According to the Congressional Research Service, a US think tank, the UK has sought to reinforce its close ties with the United States. For this reason, President Donald Trump and other members of Congress have endorsed in principle the idea of concluding a bilateral free agreement with the UK after it leaves the European Union but the UK cannot formally begin negotiation of such trade agreements before the final divorce in 2019.
Amid these changes, it seems unavoidable that the UK has to find new alternative trading partners so as to fill the vacuum left by its departure from the EU. Britain will need to negotiate new trade partnerships, especially with reliable allies like the US which has been Britain’s closest friend for many historical and cultural reasons and with which it has many shared interests.
The American think tank’s paper states that the US-UK investment relationship is the largest in the world. In 2016, US foreign direct investment in the UK was $682.4 billion. Furthermore, US corporate assets in the UK reached approximately $5 trillion in 2016, representing more than 19% of total US corporate investment abroad.
Even so, this solid partnership is not insulated against the ‘America First’ policy of Donald Trump, which puts US interests ahead of any other alliance. Even when it comes to his closest allies, the Republican president does not forget to get the best deal he can. In the meantime, some observers argue that the US-UK ties cannot be weakened by someone they consider a ‘temporary’ resident of the White House.
In March 2018, The Economist reported that British negotiations with the US to replace the EU-US open skies treaty were in trouble. People close to the talks said, ‘The US is offering Britain a worse open skies deal after Brexit than it had as an EU member, in a negotiating stance that would badly hit the transatlantic operating rights of British Airways and Virgin Atlantic’.
The British ambition to make new trade agreements is also facing a possible global trade war. Trump raised tensions by announcing import tariffs on steel and aluminium. Besides, in January 2018 the UK trade deficit was worse than forecast, according to the British Office for National Statistics.
Some of those who campaigned for leaving the EU have already expressed their regrets and hope to hold another referendum. But no matter what they feel, the separation is taking place, amid many international fears over the ultra-nationalist and populist trends which have became a prominent factor in recent international politics.