In at least one respect, Britain has gone backwards in the past thousand years. In 1028, according to legend, King Cnut sat in his throne on a beach in the west of England and commanded the tide to stop rising. The tide disobeyed, and the king had to leap from his throne to escape the rising sea.
The point of the story is not that Cnut was an idiot, but that his courtiers were. They had wanted him to demonstrate his power. Had one of them been an ancestor of Dominic Cummings, Boris Johnson’s chief adviser, he would doubtless have told Cnut: “take back control”. Cnut went along with the ploy, not to show that he was all-powerful but to prove that he wasn’t.
Today, Johnson lacks Cnut’s self-awareness. Egged on by the campaigners for Brexit, he insists that Britain will flourish, whatever the UK’s relations with the European will be when the current transition phase ends in December. On 16 October the Prime Minister warned that the UK might enter 2021 without a deal, and be forced to trade with the EU on World Trade Organisation terms. With no hint of doubt or irony, he advised Britons to embrace this prospect “with high hearts and complete confidence”.
This was the economic equivalent of promising to stop the tides. King Cnut would never have believed such nonsense.
Delving into the Brexit saga, it is easy to descend into a deep hole and be battered by the arcane details of the current negotiations: references to Canada-plus, Australia, equivalence, zonal attachment, energy interconnectors, mutual recognition, Northern Ireland protocol and so on. Breathe easy: this analysis will steer clear of these complexities. By the time you read this, the on-off negotiations might have made progress on some of the specific issues that remain to be settled; or they may not.
Either way, it is clear that Britain’s economic relationship with the EU will change profoundly. Instead of the completely open trade that has characterised that relationship, especially since the introduction of the Single Market, the UK is heading for a hard Brexit. The only question is: how hard? If a thin trade deal is agreed (and it’s now clear that if there is a deal it will be a thin one), trading with the EU will be sticky. Without a deal, it will be very sticky.
This matters to many British companies, and the workers they employ. On October 21, a consortium of UK and EU manufacturers demanded a UK-EU deal that retained “the seamless operation of supply chains and the modern marvel of just-in-time logistics.”
Such a deal is out of the question. The car industry shows why. It is one of Britain’s success stories. Last year, it produced more than 1.3 million cars. More than one million were exported – almost 600,000 of them to the rest of the EU. Plainly, the need to sell cars in years to come without tariffs, quotas or any other impediment is vital.
Vital: but, it transpires, impossible. Hardly any – quite possibly none – of those 1.3 million cars were completely made in Britain. Imported components made up a significant share of the car-making process – engines, batteries, electronics, shock absorbers, power-steering, headlights, air conditioning systems… the list goes on According to the car industry’s trade body, “Imports of automotive componentry have been instrumental to the sector’s expansion. In the aftermath of the financial crisis, access to high quality and cost-competitive parts and components allowed auto manufacturers to become high-value assemblers despite a relatively limited domestic supply chain.”
Here’s the problem. It is normal in trade deals to insist that if country A wants to export its products to its trading partner tariff-free, most of each product must be made in country A. This is usually expressed as a percentage – typically 55 per cent – of value-added. Most “British” cars fall short of that target. In trade terms, they are not British enough. Not surprisingly, David Frost, Britain’s chief Brexit negotiator, asked the EU to relax its rules. Last month, Frost had to tell the motor industry that the EU Commission had turned him down flat. Even if there is a deal labelled “free trade”, British cars sold to the EU will face a tariff barrier.
That example brings us back to King Cnut, the tides, and a fundamental choice that faces Britain over the next few years, whatever happens in the next few weeks.
Britain has always been a trading nation. Before it joined the EU, around one fifth of its economy was imported, and a fifth exported. Nowadays both figures are around one third. Not only have the proportions increased, imports and exports are intertwined as never before with the way British industry functions. Moreover, the EU is by far Britain’s biggest trading partner. Forty-seven years after the UK first joined the Common Market, frictionless trade with the EU lies at the very heart of Britain’s economy. It is not the icing on the cake: it is one of the cake’s key ingredients.
Commanding that relationship to end and expecting not to suffer is as futile as commanding the waves to stop and expecting not to get wet. Britain is about to discover the dismal reality of “taking back control”.
Once that truth has been digested, things may change. Over the next five to ten years, it’s likely that the UK will either seek to restore frictionless links with the EU – learning, perhaps, from what Norway and Switzerland have done – or bear the long-term pain of dispensing with the connections that supported Britain’s economy during the Single Market years. Under the first option, the UK will have to apply EU rules without any say in them. Under the second option, the UK will struggle to maintain, let alone improve, its living standards. Impotence or penury: not an attractive choice.
Only rejoining the EU would solve that dilemma; but the UK may have to spend some years learning hard lessons about the way today’s interconnected world works before that becomes a politically feasible option.
This blog was first published by Carnegie Europe