Friday, 20 January 2017

Step right up, now everyone’s a winner, bargains galore.

Thank goodness for Donald Trump and Boris Johnson. There was I, worried that leaving the European Union might in some way be bad for our economy, workers’ rights and public sector, when they come along and show me that everything is going to be OK. Of course it is not just the US. Apparently, countries are queueing up to do trade deals with us. We now thankfully have some greater clarity on what Theresa May plans for her brexit strategy. So, what can we take from her announcement yesterday? And how bright is the future looking for us? Can we get ready for a massive influx of trade we don’t currently have? Is the prospect of a Global Britain better than the prospect of a “Shared Britain” (now removed) or a “Red, White and Blue Brexit” (now removed) or is it just another meaningless slogan?
Really, we need to understand from the speech what we are potentially losing compared to what we might gain. That is the only way we can judge whether we are looking at a net positive or a net negative. This was the most important speech that the Prime Minister has given since we voted for her to be our leader. Only joking of course, we live in a parliamentary democracy where elected representatives are chosen and entrusted to make our decisions for us. Well apart from THAT decision obviously. So, the most important speech since her party voted for her to be party leader and therefore Prime Minister. Only joking, there was no vote for her. So, the most important speech she has given since 35,000 in the borough of Maidenhead voted for her (that’s right Americans, you think you have problems).
I am going to focus purely on the aspects relating to trade and the economy. There was actually some good stuff in there, relating to how the process will run, and also massively important areas around immigration and nationality, borders and governance. But that will have to be part of another blog. So what did we learn? Well the key points were these:
·         All existing rules and regulations of the EU will become British Law and workers’ rights will be protected, then will “keep pace with the changing Labour Market”
·         We will leave the single market, and the customs union then “pursue a bold and ambitious Free Trade Agreement” with the EU
·         We might pay to be a part of “specific European programmes”
·         If we don’t get the deal we want with the EU, we will trade with them without a trade agreement
·         We will seek out new trade deals with other partners that we don’t currently have in place

Keeping existing rules and regulations, and workers protections

                So, depending on your point of view, keeping existing safety and consumer laws is a good thing or a bad thing. It will mean that we can continue to export to mainland Europe because our goods and services will be comparable. But it might also mean that we are held to a higher level of regulation than say US or Chinese manufacturers. Therefore, this could make our products uncompetitive on a global market. So this really depends on whether we get a trade agreement with the EU.
                More worryingly, is the specific language used around workers’ rights. This should be a massive big warning sign to everybody who is employed in the UK. Over the last 6 years the Tories (and their coalition partners) have overseen the stripping away of workers’ rights, and have resisted every opportunity to improve them. For example, even at the height of the furore over zero hours contracts, the government did nothing. Coupled with that our rights to strike have been eroded, weakening our bargaining power with companies. And senior members of the government are openly talking about banning the use of strikes across industries.
                Mrs May could have said that workers’ rights would be improved upon, or strengthened. But the language is purposefully specific. “Keeping pace with the changing Labour Market”. Well, if we look at how the Labour market is changing, more people are being put in to roles where their employers can pretend they are self-employed; employers can give up any sort of responsibility through the “gig” economy; zero hours contracts will become more prevalent; trade unions will be downgraded and weakened at every turn; pensions agreements will no longer be stuck to by employers whilst taxpayers bail out pensions funds. Basically, if you are employed, then this is the start of a bonfire of what rights you currently have. If you are applauding this speech, you are either an employer yourself, or not paying attention. Perhaps somebody could remind me, when we voted for the UK to leave the European Union, where we also voted to give up our working rights to Sir Philip Green and Mike Ashley? I obviously ticked that box without realising.

Leaving the Single Market and Customs Union, getting a trade deal with Europe instead, paying for access

                It is probably worth, as a starting point, understanding what our trade deal within Europe currently means. Firstly, it is worth stating that it is probably the most comprehensive, invasive and wide-ranging multi-lateral trade agreement in the world. It includes everything from free trade (meaning we trade our goods free from tariffs being applied by other countries), customs union (meaning we all apply the same tariffs to goods coming from outside our deal), free movement (of services, capital and resource ie people) and a level of political union too. It covers almost every aspect of trade and commerce, industry and services, import and export. The effort to split ourselves out from it is on a scale unprecedented and untried. It is not simply rhetoric to say it is of the scale that countries leaving the USSR and Eastern-bloc felt during the early 90s.
                So we would be leaving, with great difficulty and cost a free-trading bloc of 450 million people in 27 states (once you take us out of the official figures). It has GDP of US$13tn (again once you take us away from the published figures). It is 41km away from us at the closest point. Those are the really key considerations in any trading deal we want to do: how many individual consumers are there, how wealthy is it, how far away is it, and what tariffs would we expect. It is worth also stating that given the depth and breadth of the negotiations that will be needed, this will (you would hope) require a great deal of considered and careful negotiation. We currently have no experience of trade negotiations, given that we haven’t had to for about 40 years. It seems a reasonable assumption that what experience we can muster together will be focussed on this deal. Two years of effort to LEAVE that free trade deal.
                Of course, it is possible that we could end up with an even better trade deal. However, it is highly improbably. By its very nature, if we are choosing to say to a trading bloc that have grown together “we want to trade with you, but don’t wish to pay in to your structural costs” then it is only reasonable to assume we will get a worse deal than full membership. Even Theresa May accepts that. Hence why the Prime Minister and others have been warming us up to the idea that we will still have to pay something to continue to trade freely in certain markets. I think it is fair to assume this will include the Motor industry (if not, then what the hell have we promised Nissan?) and financial services (given it is our biggest single industry). Of course, that gives us the question of what will the cost be? How much will we have to pay for access? Not only that, does it mean any industry which isn’t beloved of the Tories (Steel, manufacturing, non-financial services) should now expect tariffs to start to affect their business. So there we have it, a deal where we still pay in (when it suits the Tories) and everybody else has their business negatively impacted.
                Not only that, but what if we start imposing our own tariffs on European goods? Well, that will lead to massive instantaneous inflation, whilst at the same time our economy is getting worse. We had this in the 1970s – and the term which was coined was stagflation – a stagnant economy whilst prices rise. It was a horrific time. If you are too young to remember it be grateful, then ask somebody who was around how it felt.

No deal is better than a bad deal, trade deals with other parties

                Of course, we could choose to have no trade deal at all with Europe. However, just the most cursory glance at this shows how completely stupid and damaging this would be. This would mean that we would immediately start trading with ALL of the European Union at WTO Tariff rates. In effect every single item that we export to Europe would immediately be less competitive, and therefore we would either have to sell less OR sell them more cheaply. The idea that no deal is better than a bad deal is complete hogwash – and everybody knows it. God even to export Oxygen to the EU we would have to pay a tariff of 5% - and they breath the bloody stuff (yes, I know, thanks). So this idea that we will go with No Deal is never going to happen. Besides which, in all honesty both parties want to get a deal. It is in their interest as well. It is entirely a PM trying to sound tough for the UKIP-leaning voters in her own party. It is simply within our interest to achieve some deal with Europe (popn 450m, GDP US$13tn, dist 40km) – and it is theirs to do a deal with us (popn 65m, GDP US$3tn, dist 40km).
                What about other deals? We are told by Boris Johnson that countries are “queueing up” to do a trade deal with us. Well, the first consideration is – why aren’t we trading with them currently? If these countries are so desperate to get a trade deal with us, why is that? Well, we already do trade with many of them. But it is at a lower level than perhaps we could. Therefore, any belief that this will lead to a massive influx of NEW trade is again erroneous. What it will do is make trade easier and therefore give some lift to our global trade levels. It might also (if we remove import tariffs) lead to consumers paying less for certain goods. It is way beyond me to be able to state with any certainty what scale the impact would be. But it would need to be very high indeed to offset any major losses of trade with the EU. I am going to leave the US to one side for a moment, but still, let’s pick out some of the options which do look like “live picks” ie countries that are talking about trading with us:
Size of economy



New Zealand





South Korea

9,136km average

                So, if the worst happened and we stopped all trade with the EU (which no-one is suggesting, to replace it we would need to trade with these 8 separate economies to get a trading block of the same size. Ignoring the fact that on average that would mean sending goods 45 times further on average to sell them.
                To put it another way, our trade with the EU accounts for 45% of our exports. If we lost a quarter of that export trade – on our doorstep – we would need to boost our sales internationally to non-EU countries by 11%. Unfortunately, our trade with international neighbours is already at record levels for us. What else are we going to sell – at a competitive price after sending it an extra 9,100 km? The very desperately sad thing is, we are already a successful trading nation. Is it really possible that not being part of a customs union with the EU is going to boost our trading with every we currently trade with across the board by over 10% BEFORE the end of the current deal with the EU in 2 years’ time?
                Who is going to negotiate these trade deals? Everyone with experience or knowledge will be working on the EU deal? Or should we leave that to Boris “let’s joke about the Nazis” Johnson? Genuinely? Of course, we have the trade deal to look forward to with the US. After all, we have been promised a trade deal by the President-Elect, a man who never goes back on what he says. Well, he has already threatened to pull out of NAFTA (a free trade deal), and put 35% import tariffs on goods from China and Mexico – 2 of their biggest trading partners and very strong economies. If Donald Trump is looking to trade on those terms with others, why would we believe we would get anything more beneficial?

Everything’s rosy

                There is no hard evidence to say that is all impossible. It may well be that against all odds the government manage to deliver. But for that to happen we would need a massive turnaround in fortunes, in abilities, in industry, in trade patterns and in the views of our own government. At the same time we would need the EU to be kind to us in any future trade deal. Put quite simply, the potential risks are much greater than the opportunities at the moment. I would love to be wrong about this – and I am often wrong. But I see no analysis which suggests anything other than this stark conclusion – by leaving the single market we are throwing away access to a strong market on a really good deal for the possibility of access to less accessible markets, with less good deals. This can only be bad for our economy. 52.1% of people voted for Brexit. But how many voted for an almost certain worsening of our economy, job losses, rights and protection losses, uncertainty and a weaker economy?