On January 4th of this year, Liam Fox, Secretary of State for International Trade tweeted that the “IMF predicts 90% of growth will come from outside the EU”.
This obsession with “growth outside the EU” is an implicit admission that disruption to current free trade with the EU may negatively impact growth in the UK. Perhaps the Secretary did read in that same IMF report that projected growth for the EU in 2019 will reach 2% while it will be only 1.5% for the UK.
Two months later, on March 2nd, the Prime Minister made this threat explicit stating that “the reality is that we all need to face up to some hard facts.”
The hard facts may be that at least some sectors of the UK economy will be hurt when even a few barriers to trade and custom restrictions will reappear. How much pain there will be is still unclear because there are no details yet on any future trade agreements.
These hard facts could become even harder than those Theresa May hinted at in her “five tests”. The entire Brexit economic gamble rests on the notion that the UK will do better economically than if it had remained a member of the EU.
There are two main hurdles to this gamble.
The first is that two of the three largest world markets, the US (number one) and China (number three) are threatening to move towards more, not less protectionism. In this context, how much leverage the UK might have when asking the US and China to allow more access to UK goods and services?
Is there much negotiating might in saying “listen we just left the second largest trading area (the EU) so we need you to hurry up and sign a deal with us”?
This is particularly acute with the US given that the UK has a trade surplus and Donald Trump is not keen on losing “trade wars”.
Secondly, it may sound surprising to some that it is possible to export to China and be a member of the EU. In fact, the EU is China’s largest trading partner. Germany and France both export more to China than the UK. The question for the trade minister is this: what kind of trade deal with China might compensate, at least partly, for any loss of trade with the EU?
The balancing act for the UK is this: “what is the minimum level of change required to officially qualify as Brexit while minimizing any negative economic impact?”
No wonder a lot of energy is being expanded so that as much as possible remains the same.