Companies have forgotten how much the global trade regime matters to daily firm operations. If it did, in fact, collapse, the result would be a disaster. The global trade rules are like air. They have existed for so long that companies and consumers take them for granted. They don’t even notice them any longer. But, like air, if it suddenly went away, firms and consumers would discover to their great dismay that they actually like and need air (or the global trade system) very, very much. Why do firms need the WTO? Start with the obvious issues. Right now, 164 countries are constrained in what they can do with tariffs rates. Up until this past year, WTO members did not just randomly hike tariffs overnight. Keeping tariffs consistent has allowed firms and customers to have stability and reduce risk.
Reprint: The 61% pro-Brexit vote in Sunderland is what happens when cities fail to recognise the ways in which the global economy has changed, and when they fail to connect the dots between the global economy and individual livelihoods at home. Though proud residents might like to spin a narrative of independence, the reality is that workers here are literally standing on the front lines of an interconnected global economy. Ask those in Sunderland, however, and you would think Brexit was far less important than Britain losing to Iceland in the Euro Cup. The New York Times carried an article featuring a variety of perspectives from Sunderland, summarised best, perhaps, by Ken Walker, a retired construction worker. “I don’t have any money in the stock market,” Mr. Walker, 59, said as he drank a pint of beer in a pub. “So what’s it to me?”
Ignore, for the moment, all the issues attached to anything other than trade. On the trade side alone, the lack of a deal with the EU to handle trade amounts to more than just “additional paperwork.” Because the UK has been part of the EU for so long, with seamless trading in place with zero tariffs, no customs checks, no paperwork, limited services barriers, ease of moment of people and so forth, this situation feels normal. In a hard Brexit scenario, none of these conditions will apply. As many firms outside the EU would be happy to describe, doing business with the EU can be a complicated and costly process. Tariffs into the EU for non-member firms can be high. The customs and compliance formalities are tricky. Most UK companies currently meet EU standards for products, but should expect significantly greater inspections at the border.
It has been two years since the fateful Referendum of 2016, yet Brexit remains as divisive as ever. May, already damaged by a disastrous General Election in 2017, struggles to hold together a cabinet divided between “hard” and “soft” Brexit. Ministerial infighting has led to incoherent policies that have weakened both the UK’s negotiating position and its international credibility. The recent departures, especially that of Johnson – who commands a large following among the Tory faithful – have only worsened political instability, leading to rumours of a leadership challenge within the Conservative Party. Meanwhile, time for negotiation is fast running out: the 29 March 2019 Brexit deadline is less than a year away. While the announced deadline is March, the practical end date is even sooner, as the EU side needs time to approve the final deal. While a “soft Brexit” may not be ideal, a “no-deal Brexit” would be catastrophic. British agricultural and automobile exports could face EU tariffs of up to 40% and 10% respectively. Trade in services would also be adversely affected by a loss of passporting rights, which allow British businesses to sell services Europe-wide without having to obtain a license from individual members. Significant trade disruption would be also ensue as the UK replaces the EU Customs Union and various European regulatory agencies with local equivalents.
Without a House of Commons majority, parliamentary mathematics suggests that Brexit can only be agreed and delivered if the Conservative minority government forges a cross-party approach to Brexit. This would likely mean that May will have to compromise on her hard Brexit plan in order to create a new national consensus. BUT here, we must caution against overestimating the role of Britain on the Brexit process. An equal if not greater share of the decision will depend on the EU. The degree of hardness or softness is NOT a unilateral choice to be made by the UK.