Britain, like Canada, has been deindustrializing for decades and the process will accelerate under Brexit. Prime Minister Boris Johnson’s “new dawn” puts an optimistic spin on the reinvention of the country without the European Union at its side. Who wants to make stuff in a market that isolated itself from the world’s biggest trade bloc?
Brexit happened at the stroke of midnight, Brussels time, on Friday. Nothing much will change at first. Britain will remain part of the common market and will pay into the EU budget until the end of December, by which time, according to Mr. Johnson’s reveries, it will have a new trade deal with its former buddies. In other words, having shorn itself of the EU, Britain will now spend the next 11 months, in effect, fighting its way back in.
Industries and businesses on both sides of the English Channel would be wise not to get their hopes up for a deal on such a tight deadline – Mr. Johnson has ruled out any extension. The negotiations are starting from virtually zero. While the Irish question has been addressed, if not quite solved – there will be no hard border between Northern Ireland and the Republic of Ireland – absolutely nothing else has.
Britain is leaving with no deal on the trade of goods and services with the EU; no deal on data or banking regulations, or any regulations; no deal on fishing rights. But never mind. Britons will get new, dark-blue passports (made in France, by the way) and a new 50-pence coin that has annoyed fans of the Oxford comma. Its inscription reads: “Peace, prosperity and friendship with all nations.”
Mr. Johnson apparently has not realized that Britain has about zero leverage in trade talks with the EU or the United States. The American economist Adam Posen has pointed out that trade is a matter of “gravity” – you do most of it with your neighbours, not countries at the other side of the planet. The EU, by definition, will remain Britain’s biggest trading partner. The EU smells blood and will force Mr. Johnson to sign a deal on its terms, not Britain’s.
If Britain doesn’t get a deal with the EU by the end of the year, it will crash out and be forced to rely on the good graces of the World Trade Organization. If you were a business, would you invest money into Britain today? Probably not. Would you go so far as to move your business to the EU? Maybe. It’s a cliché to say that business hates uncertainty, but it’s true. Shareholders don’t like chief executives gambling with their money.
Britain is already losing industrial companies at an alarming rate and Brexit is playing a role in the great British downgrade, although no exodus-minded CEO would be so rude as to admit so. Honda Motor Co. Ltd. is closing its long-established British factory. Ford Motor Co. is ending production at its Welsh engine plant and Nissan Motor Co. Ltd. cancelled plans to expand production at its northeastern England assembly plant. Airbus SE’s enormous wing factory in England, which employs 13,000 and lies at the heart of the country’s engineering industry, is vulnerable. Airbus CEO Guillaume Faury has said a no-deal Brexit would be “a disaster” for the company.
Brexit isn’t the only factor that will hollow out Britain. Many industries – banking, insurance, auto making, office tower development, retailing – suffer from overcapacity. A lot of those industries are owned by foreigners.
Now along comes Brexit, a blessing in disguise if you are a boss wondering where you can reduce your capacity without triggering a political firestorm. Britain is out of the EU. So the British limb gets amputated to protect the EU body, and the British government would have no right to complain because Britain chose Brexit – it wasn’t thrust upon them by the nasty gnomes in Brussels. The retrenchment process will accelerate once the Europe-wide recession hits, and it may already be hitting. Note that both France and Italy, the EU’s second- and third-largest economies, on Friday reported negative growth in the last quarter of 2019.
Predictions of a wholesale exodus of London’s financial services industry to Frankfurt, Paris, Dublin and Amsterdam have, so far, proved wrong. Some jobs have fled, but not many and it’s not just because Frankfurt’s charms are lost on British bankers. Again, it’s overcapacity. There are simply too many costly, pampered bankers, especially of the investment banker variety, chasing too little business. The City of London (as the financial district is known) will become a lot smaller, although its shrinking act will take time.
There is no scenario in the short- or medium-term where Britain will profit from Brexit. A recession, one made worse by the exodus of companies, seems likely as the country adjusts to life on the fringes of Europe. In the long run, Britain might do well. It has a fine track record of (eventually) overcoming hellish situations, like world wars. But healing the self-inflicted wound called Brexit could take decades, not years. EU membership had its privileges.
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