Theresa May has said Britain will not remain a full member of the EU single market and customs union after Brexit, saying the UK wants to open up to negotiate its own trade deals with the rest of the world. “Countries including China, Brazil and the Gulf states have already expressed interest in striking trade deals with us,” she said. “We have started discussions on future trade ties with countries like Australia, New Zealand and India. And President-elect Trump has said that Britain is not at the back of the queue for a trade deal with the United States, the world’s biggest economy, but front of the line”. Brexit, Mrs May said, “must mean control of the number of people who come to Britain from Europe”. That means Britain will leave the EU single market, because free movement of labour is one of the pillars of that market. Migration control and the single market are incompatible. She also highlighted that her negotiating priorities will be driven by four underlying principles: “certainty and clarity; a stronger Britain; a fairer Britain; and a truly global Britain”.
Theresa May put economic prosperity, jobs and livelihoods at risk for an obsession with curbing free movement and controlling immigration from the EU as well as removing Britain from the jurisdiction of the European court of justice. I would like to highlight some of the raw economic facts that shows the magnitude of the economic integration between the UK and the EU. According to a recent paper published by the British Parliament about the economic relationship between the EU and the UK, the EU, taken as a whole, is the UK’s major trading partner, accounting for 44% of exports and 53% of imports of goods and services in 2015. The share of UK trade accounted for by the EU 28 is lower than a decade ago. Furthermore, the EU is a major source of inward investment into the UK. In 2014, EU countries accounted for £496 billion of the stock of inward Foreign Direct Investment, 48% of the total. A 2015 survey by EY found that the UK attracted more FDI projects than any other European country in 2014.
Brexit follows a flawed economic logic guided by political short-termism and hostility towards immigrants. It attempts to cover the real vision of the Conservative party for Britain by selling to the electorate the illusion of taking back control of borders and the ability to strike trade deals with emerging economies. There is no reason to think that after Brexit the UK can substitute its trade with the most luxurious market in the world with emerging economies such as China and India. To date, UK still exports more goods to Belgium than to India and China combined. Not to speak of the geographic proximity of the EU to the United Kingdom as opposed to Asian economies, the US and commonwealth countries. With regards to free trade with America, which Trump seems very enthusiastic about, there arise a number of issues. For a small market like the UK with higher standards of consumer, employee and environmental protection than the US, a future trade deal is more likely to involve American corporations demanding that the British conform to their product standards than the other way around. This may well result in lower product standards for UK consumers.
With regards to international trade, geography matters. Liberated by Brexit from the EU, the UK Trade minister argued, Britain’s entrepreneurs can now explore the world in search of new export markets. A service-based economy such as the UK can send exports to far-flung countries in no time and at zero transport cost, he said. The assumption that digitisation overcomes distance may misapprehend the nature of the service economy, predominantly those high-value-added parts in which the UK have a competitive edge. The globalisation boom resulted in many excitable predictions of the “death of distance” as explained by the Financial Times. It seems, in fact, even as services have replaced tangible goods, that distance still matters. Few management consultants, for instance, undertake large jobs without frequent on-site visits with clients. According to the Financial Times ‘’when India tried to push its IT and business services sectors up the value chain, it began to focus on trying to negotiate for more work visas in every trade deal that it attempted to sign, recognising the value of sending staff to meet clients in person’’.
May’s insistence on a fairer Britain post Brexit in her speech does not coincide with her warning to the rest of the EU that any attempt to give the UK a punitive deal will result in turning the UK into a low regulated tax haven economy off the shores of the continent. Phillip Hammond, the Treasurer, re-emphasized the same idea to a German newspaper that the UK would consider abandoning the European mainstream economic and social thinking if the terms of the new deal were unfavourable. How can the prime minister promise a fairer Britain if part of her thinking is kick-starting a second wave of a Thatcherite neo-liberal agenda where the UK relaxes its regulations over the economy and abandoning the welfare state under the delusion of competitiveness. How can British nationals improve their living standards, if the PM threatens a low-tax, corporate taxation, bargain basement economy on the offshores of Europe?
Egyptianomics 