First posted on:
mainly macro, 5 June 2018
The arguments against staying in the Custom Union are pathetic. It is as if Brexiters, having chosen Brexit because of their visceral dislike of the EU's labour and environmental regulation, realised that this would have a major negative impact on trade and tried to compensate. ‘Global Britain’ was born. Even if you strip out the nonsensical associations with past empire, Global Britain must be one of the most ridiculous ideas to be taken seriously by the broadcast media.
According to the Brexiters, the EU prevents us doing good trade deals with other countries because of vested interests in some of the EU countries, and therefore the UK outside the Customs Union would be in a much better position to make good deals. The first point is the EU already has trade agreements with around 50 countries, with more in the pipeline, which is a lot. Another is that third countries want trade deals with the EU much more than they would want them from the UK, because the EU is a bigger market. And finally, because of its market size, the EU can set the standards with which other smaller countries have to conform. Market size brings power in any trade agreement.
If you want to see how much market size gives you power, look at what happens when Trump tries to tear up trade agreements. If you have a similar market size, as the EU does, you can retaliate with a reasonable chance of causing enough economic pain in the US to reverse the initial policy. If you are a relatively small economy, as the UK will be if it acts alone, any retaliation could be little more than a pinprick for the other side. This is also, incidentally, why arguments that we somehow had more power over the EU in the Brexit negotiations because of trade balances are ludicrous, because walking away inflicts in proportional terms so much more damage on the UK than it does to the EU.
Global Britain is so dumb a concept that you can concede huge amounts of ground and still win the argument. Suppose the UK did manage to get better trade agreements with the 50 countries the EU already has agreements with and more before the EU does. This is still likely to come nowhere near to replacing the trade we would lose from leaving the EU. The reason is that distance still matters for trade. It is one of the most robust empirical results in economics. Nor have existing trade barriers prevented Germany in particular from increasing trade to China and other countries.
In response, Brexiters always say that it is more important to export to the fast-growing countries that are the emerging markets, rather than the more slow-growing advanced economies in the EU. But not all countries in the EU are growing slowly: we have a fast growing one, Ireland, on our doorstep. You might respond that a country like India is a much bigger market, but the UK’s exports to Ireland in 2016 were five times larger than those to India. The UK government have done the calculations and they suggest that successful FTAs with other countries including the US would come nowhere near compensating for lost trade with the EU.
All this is all before we think about the Irish border. It is patently obvious that if the UK leaves the EU’s Customs Union and Single Market for goods, there would have to be a ‘hard border’ either on the island of Ireland or within the UK. Instead of acknowledging this obvious fact, Brexiters have gone to incredible lengths to invent mad schemes that purport to avoid this inevitability. The way this sometimes seems to work is that policy entrepreneurs from places like the Legatum Institute feed schemes to ministers, and then after announcing them they ask civil servants to gather evidence.
The Brexiters do all this nonsense because they know even a soft Brexit like the Jersey option does not give them the freedom to ‘complete Thatcher’s project’ they crave. Which brings me to Theresa May. She is very much the wrong person to have been in the right place at the right time. Any prime minister worthy of that office should have quickly realised that a hard Brexit would involve economic costs that no prime minister should inflict on the economy. Another way of putting it is that the Brexit people voted for – taking back control and being at least no worse off in economic terms at the same time – was an impossible project. That realisation should have governed how she approached Brexit from the start. She should have said that she accepted the referendum vote, but she would not implement any deal that would do significant economic harm to the country. No one would have criticised her for such an endeavour.
The task of her premiership should therefore have been to gradually marginalise the Brexiters. They were always going to cry betrayal, so best to ensure that this happened slowly (to avoid giving them the ammunition to create a leadership election) from the moment she became prime minister. The way to do that was to refuse to trigger Article 50 until a clear negotiating strategy was in place and tested using a realistic view of what the EU would do. Assessments should have been made before, not after, negotiations started to ensure the right strategy was in place. To do that, she had to ensure the Brexiters were involved in the process, but not in control.
A process like that would have quickly established that leaving the Customs Union and elements of the Single Market was incompatible with avoiding a hard Irish border. Of course Brexiters would dispute that, but she should have already known the rather loose relationship with the facts that many Brexiters have (for example, some continue to this day to claim that the EU erects high barriers to exports from Africa). Anticipating the Irish border issue would mean that most ministers would have quickly realised that only some kind of soft Brexit was possible. There might even have been preliminary discussions with senior EU politicians about whether the Jersey option was acceptable. The UK’s bargaining power, with Article 50 untriggered, would have been much greater.
Theresa May chose to do the complete opposite of all that, perhaps because she could not contemplate having to take on the Brexit press. She appointed Fox, a Brexiter, to a post that depended on the UK leaving the CU. She drew red lines that were impossible without a hard Brexit. And of course she triggered Article 50 without having done the necessary analysis and with no clear strategy in place. If there was any method in what she did, it seemed to be to appease Brexiters and their press at all costs. And one thing we do know about Theresa May is that once she has chosen a course of action, she sticks to it until it becomes untenable and possibly even after that.
Andrew Rawnsley calls her a “zombie prime minister”. But I think his analysis of why a prime minister that is so bad at choosing sensible strategies and so inflexible and so hopeless at fighting elections is still with us skirts around the answer. The party is hopelessly split over Brexit, and while the majority of MPs have no time for Rees-Mogg, he is currently favourite among the members who are mostly Brexiters and have the final say. As I have said before, so much has been written about the ‘hold’ that Labour party members have over their party, but Conservative party members have saddled the country with one of the most inadequate prime ministers it has ever known.
May has handled Brexit terribly, but she has enough political instinct to understand why she is still leading her party. As long as the Brexit negotiations continue, most Conservative MPs may feel too nervous to risk a new leadership election. Equally if she is challenged by the Brexiters she may well win. That knowledge gives her every incentive to bring about the perpetual Brexit that I talked about here. A zombie prime minister carrying out a zombie policy, that could haunt this country for many years to come.1
 Can zombies haunt? I'm afraid my knowledge of horror movies is deliberately thin. I was originally going to call this post Idioteque, because it was the thought that came into my head while trying to think of a title (maybe I should blame Steve Bullock). Luckily I later realised the word I was probably searching for. Or maybe not?