Trump, Johnson and Davis Show that Economics Finally Beats Politics on Brexit

The resignations of Boris Johnson and David Davis, the Foreign and Brexit Secretaries respectively, and the imminent arrival in the UK of the American President Donald Trump might seem to be wholly unrelated political events and neither of which has anything to do with economics.

The opposite, in fact, is the case. The departure of the man who has been the lead negotiator on Brexit — although perhaps a Nino (Negotiator In Name Only) if reports are to be believed — is a clear sign that there is strong opposition within the Tory party to a “soft” Brexit that that would keep the UK within the EU market for goods and foods.

The likely angry — but funny — protests against the state visit by Trump on Thursday will be a reminder that attempts by a post-Brexit government to rush into a trade deal with Washington will face hefty opposition.

Up until now it appears that politics trumped economics. That order has been reversed. After keeping silent for way too many months, the industrial giants who employ tens of thousands of people in Britain — Airbus, BMW, and Jaguar Land Rover to name but three —  have come out in public. Their trade associations the British Chambers of Commerce and the CBI, have joined in.

The BCC published 24 “top real-world questions being asked on Brexit by businesses across the UK”, that includes worries on tax, R&D and migrant worker status as well as tariffs and regulation. The CBI and TUC issued a rare joint statement calling on Theresa May to put economic interests and people’s jobs, rights and livelihoods first.

She appeared to have listened when she assembled all 23 ministers at Chequers, confiscating their mobile phones before belatedly showing leadership by driving through her compromise proposal. The CBI’s subsequent warm welcome for the free trade in area in goods was a sign that the pro-Brexit lobby had been put back in its box.

The fact that the CBI hailed the deal as a good starting point probably confirmed what pro-Brexiters inside and outside government feared. The presumption that Brussels is unlikely to accept it is, ironically, neither here nor there.

The German bank Berenberg now gives odds of 60% for a soft Brexit

By the time you read this article, other cabinet members and ministers may have resigned, and speculation may be heating up that May will face a leadership challenge. Despite a wonderfully sardonic comment by one economics commentator who borrowed the famous question about a tree falling in a forest to ask whether it matters if a cabinet secretary resigns and no one cares, it will matter.

Davis quit because  “the current trend of policy and tactics” was making it “look less and less likely” that the UK would leave the customs union and single market. Staying inside one or both is what business wants and will continue to call for up until and beyond 29 March 2019.

The German bank Berenberg now gives odds of 60% for a soft Brexit, saying that as long as Irish PM Leo Varadkar gives the nod, the rest of EU27 can probably agree to an augmented version of May’s proposed free trade area in goods.

A deal on services that make up 80% of the economy would depend on the UK’s partial acceptance of the freedom of movements of people, which is the next red line May either has to observe or erase.

For now, the appointment of Dominic Raab as the new Brexit Secretary indicates that May has continued to her strategy of attempting to keep a balance inside her cabinet between Pros and Antis. She has missed an opportunity ao appoint a minister with the clout to negotiate a soft Brexit.

One of the reasons that the Brexiters hate the Chequers agreement that the agreement to a “common rule book” with the EU on goods and foods threatens the ability of the government to strike trade deals with other countries such as the US, China and India.

Food is a touchstone issue with any US deal as there has been a lot of concern voiced over the UK being forced to accept hormone-injected beef and chlorine-wasted chicken as part of a USD/UK trade deal. American farmers would dearly love access to a European market for those goods.

Of course, trade is not the only — or even the primary — reason why thousands of Brits will be out on the streets of London and other towns and cities that Trump may visit during his UK tour this week. His treatment both verbal and actual of Mexicans, migrants generally, LGBT people and women probably rank higher.

But Trump’s decision is use trade to attack not just China but his avowed allies of the EU28 as well as Mexico and Canada have alarmed people on both sides of the political fence in Britain. Pushing for a deal with the US that would doubtless appear clearly one-sided in America’s favour will bring people out of the streets again, armed with balloons or cows and hens as well as Trump himself.

Uncertainty still reigns — as much for commentators as for politicians and employers — but it seems that for moment, to coin a phrase, economics has trumped politics.

More about the author

About the author

Phil has run Clarity Economics, a London-based consultancy, since 2007 and, before that, was Economics Correspondent at The Independent.

Phil won feature writer of the year Work Foundation Work World media awards in 2009, and was commended by the Royal Statistical Society in 2007.

He is the author of Brilliant Economics and The Great Economists.

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