Brexit: And so it begins…

Last night Theresa May signed a letter to trigger Article 50. And so begins the actual process of leaving the EU.

The performance of the UK economy since Britons voted to leave the EU last year has not seen the upheaval in the UK economy that many predicted in the build up and aftermath of the referendum. I have read many arguments by pro-Brexit commentators and politicians that this vindicates their assertion that leaving the EU was a ‘good thing’. The argument between Nigel Farage and Alastair Campbell on breakfast TV this week, refereed by Piers Morgan (in what has to be the most Marmite of sofas ever recorded) is a good example of this argumentation being put to use.

This argument is one that could only gain traction in the ‘post truth’ world that has played a significant role in world politics in recent times. In closing my last blog post, I referenced Adam Posen (formerly of the Bank of England’s Monetary Policy Committee) who, discussing why the UK economy had not experienced a huge drop off (the value of sterling notwithstanding) since the referendum, said:

“This is Wile E. Coyote logic – I ran off the cliff, but so far I haven’t hit anything and the view is nice so the future will continue to be nice. Splat”

This situation remains the case but, in invoking Article 50, we are getting closer to finding out whether the ‘nice’ will continue or whether it will be a ‘splat’.

We should be mindful that the same risks I outlined in my last blog still exist: that we are essentially placing trade (and other) barriers between ourselves and our largest export and import market. In my view, to say that this opens up opportunities to increase trade with the rest of the world (and implicitly saying that our being in the EU is what has slowed or stopped this from happening hitherto) is, at best, a partial truth.

Yes, a post Brexit world does offer greater opportunities to do trade with the rest of the world. But the question is would we have done so in any substantial way if we had never joined the EU? In other words – but for us joining the EU, would our geographical mix of trade (both imports and exports) be significantly different? Has the EU held us back?

There’s no way of knowing. But, given the geographical proximity of Europe and the fact that the EU is, collectively, the largest economy in the world, I would suggest not. And so, given these two facts, is there a reasonable argument to say that UK companies’ appetite to trade with the EU will diminish?
I would suggest that our trade relationship with our biggest trade market cannot quickly be replaced with new and exciting far flung prospects.

Two years is a ridiculously short amount of time to reach trade deals with any economy – they typically take far, far longer. All this whilst agreeing the various other legal and financial separations that need to take place. As such, I expect that, whilst the formal process of Brexit may take that long, Britain’s place in world trade may take longer to crystallise.

The importance of trade, the difficulty in agreeing trade deals generally and the current lack of clarity in what arrangements will be in place mean that all eyes will be on the UK Government and the EU’s negotiating team for the next two years and, in all likelihood, beyond.

Similarly to the global financial crisis, from a purely academic point of view, the future is going to be interesting. In reality, however, this period is incredibly important and the breadth of outcomes is large and diverse. As such, this government’s entire term will be about making a success of Brexit and this will necessitate, as ever, heavy usage of political spin. In the age of ‘FAKE NEWS’, what this means for the British people is the need for cynicism and liberal use of the ‘smell test’. What this means for me, is that I should have plenty to write about in future.

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