The central claim in the Conservative election campaign is that May, alone among the leaders, can bargain a good Brexit deal. The election was called to give her a mandate and we should vote for her to negotiate Brexit. She offers “strong and stable leadership” during this process and she will win a good deal for us.
May has pledged that she will “fight for Britain” and has said repeatedly that “no deal is better than a bad deal.” She is the one who should sit in the “Negotiating Chair” and she will make the difference. But is this personality pitch really what might happen? This article suggests the Emperor has no clothes. Really, May does not matter. The bargaining and trade solution will be worked out in a predictable way, not by one person. She will make little difference. May’s claim is a myth, mere posturing, sadly duping millions of voters who do not question her slogans. This snowman must be brought out into the sun so that it melts away.
Not one person, but the overall European trade situation, will shape the trade negotiations. They will be carried out by EU and UK civil servants with input from the biggest trading companies on both sides and will certainly not be formulated or evaluated by an inexpert Prime Minister posturing “strong”. The factors involved will be those normally considered in trade economics. The outcome will roughly be the following.
Because both sides have strongly linked trade, tariffs will be low. The big companies involved will see to that. The EU has to levy tariff at some rate to show we have left the single market, but their exporters will want it low. Neither side can lose face by having a differential tariff against them – say 4% on imports and 6% on exports, and so the rate will be the same both ways. Because the UK imports more than it exports, it has one bargaining chip. Because we export half of our total to the EU, they have a bargaining chip. A mutual tariff of 1% looks derisory, and so it will be 2%, 3% or 4%. Five per cent would begin to harm trade. My guess is 2%. Teresa May will largely be immaterial to the result.
Because the Conservatives have now destroyed UKIP, there is no pressure towards isolationism. Migration may even out, but May is offering no policy to cut immigration. Deals on banking may be harder. Environment, employment, trade rules, quality control and other areas will largely follow current European practice, partly because it is good and partly because UK export trade will have to follow that pattern anyway.
So May’s initial rhetoric towards negotiations is wrong. No deal is a bad deal and incompetent. Therefore, there will be a deal, unless flaring egos create problems. Either Corbyn or May will come away with 2-3% tariffs, whoever is in Number 10, and May’s election pitch is entirely unreal. The trade outcome is about as predictable as economics gets.
However, there is an elephant in the room – a UK trade crisis we are completely ignoring. In March, 2017 total trade exports were £31.4bn and total trade imports were £45.7bn, a deficit of £14.3bn. Weigh those figures. We would need to increase our exports by some 45% to be in trade balance. The trade deficit is over £100bn a year. Normally, economists use the UK Current Account Balance which includes services to assess the overall trading position, but even that is £60bn a year. This pattern has emerged over a long period and the accumulated deficit is over £1trillion. As a result more than half of the UK’s quoted companies by value and much property are owned abroad. This situation is not stable; it depends on many foreigners continuing to hold UK assets. A crisis will probably emerge in the coming five years.
Put in other terms, we are not paying our way and the situation is chronic. Each household is spending over £2000 a year more on imports than it is generating by exports and one way or another our incomes will fall. This is the issue of substance.