UK citizens’ vote to BREXIT shocked many within and outside of Europe. Despite a successful legal challenge, Prime Minister May still aims to give a withdrawal notice to the European Council by March 31. This will trigger a two-year countdown within which the UK Government will have to hammer out an exit deal with the EU. Prime Minister May has recently announced that the UK will be leaving the EU Single Market, paving the way for a “Hard BREXIT.” In the absence of agreement otherwise, goods will no longer circulate tariff-free and without border-formalities between the UK and EU27. There is also a risk that UK firms and US businesses with UK activities may face discrimination in terms of establishing themselves within the remaining EU27. UK negotiators will be working hard to prevent this though.
Conversely, the UK would finally be free of product/service standardization, and should no longer have to pay £8.5 billion (net pa) into the EU budget. The UK could also adopt import duties distinct from those of EU Common Customs Tariff, and craft its own international trade policy which would include negotiating bilateral Free Trade Agreements with the US, EU China and India. Unless the UK economy starts to stutter in anticipation of any Hard BREXIT, popular support for this option endures. Parliament is expected to vote on “triggering Article 50” (shorthand for leaving) over the next 8 weeks, prior to which UK MPs will debate the various options, including customs union (a la Turkey), bilateral services/goods agreements (the “Swiss Option”), the WTO default option and comprehensive FTAs. In the meantime, UK Government officials prepare for negotiations with the EU bloc, including identifying the EU obligations and rights they need to retain, such as freedom to market and provide financial services across the EU, and those they wish to jettison.
Meanwhile across the Atlantic, Donald Trump is assembling his Cabinet. Whilst many of his domestic economic policies have focused on benefits for corporates and financial institutions, including tax reductions and deregulation, his protectionist trade agenda has been greeted with trepidation.
Mr. Trump made restricting free trade a cornerstone of his campaign, in a bid to try to increase US production and jobs. Indeed, he suggested imposing a 45pc tariff on “currency manipulator” China’s imports into the US. He also proposed taxing imports from Mexico and unraveling NAFTA. Mr Trump is also keen to undermine the Trans-Pacific Partnership. Economists and commentators have warned against such protectionist measures on the grounds that they could depress global trade, and trigger trade wars, thereby reversing the post-WWII macroeconomic trade policies that generated worldwide prosperity and US economic growth.