Why the UK needs that BREXIT deal (Part 2)

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The balance sheet of trade between the UK and the EU shows a very clear picture and it’s not a pretty picture from the British perspective. There is a dangerous unbalance between imports and exports from and to the European Union. As such, this would be enough reason to be already rather concerned about the risks of a no-deal Brexit, but the advocates keep telling us that this will not be much of a problem because the WTO rules would apply.

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Hovering between -20% and -30% unbalance is reason enough to want have a trade agreement but it also implies who has the stronger hand and who doesn’t. But even the concerning -20% to -30% unbalance in trade is not the biggest concern from a British perspective. To understand the real priority and challenge, we have to take a closer look at how goods and services are impacting the trade volumes.

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The trade balance for goods show that the UK is importing significantly more than it is exporting. This shows us 2 important factors which contribute to the risks of a no-deal Brexit scenario.

  • The UK is importing large volumes of essential goods from the EU which are needed to sustain its economy, including food, parts, etc.
  • The trade balance of goods is much worse than the total balance, meaning there is an offset in non tangible trade to which the WTO ruling hardly applies and in many cases even not at all.

Anyone who had a closer look at the economy of the United Kingdom and especially the developments since its entry into the European Union already knows what is causing the offset in non tangible trade. The booming service industry in the UK, mainly financial services and travel.

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After 5 years of feeding the services industry fairy tales about the wonders Brexit will do to the British economy, Prime Minister and Chief Architect of the Brexit campaign and strategy Boris Johnson told the sector that they “have to be creative because there will be difficult times ahead”. When asked what his proposal was after all those years of saying the opposite, his answer was “I rely on good-old British ingenuity to find solutions”.

Less than one hour later, the same Boris Johnson admitted that “every Brexit scenario without far reaching arrangements for the services industry would cause significant damages to the British economy” [sic]. In his unique drive to always make someone else responsible for the issues he caused, he continued “I call upon my friends and colleagues in Europe to finally strike a fair deal for the service industry to maintain the United Kingdom as a strong trade partner.” [sic]

The service industry in the United Kingdom has grown consistently since joining the European Union and has contributed significantly to the prosperity of the UK as member of the EU. Let the numbers speak for themselves, no less than 40% of the export from the UK to the EU is services.

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In the opposite direction, the UK is mainly importing goods from the EU and only a small portion of services.

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Service are a very visible issue when there is no Brexit agreement which covers these and even with a deal for the service industry, there will be no arrangement for passporting within the EU and that happens to be a main enabler for the service industry within the EU…

And that still is not everything. There is more which makes it even less understandable why Boris Johnson keeps pitching for Brexit itself and has not yet made any substantial contribution to negotiating a deal. To understand the real impact of a no-deal Brexit scenario, we have to look at the balance sheet of imported parts which are used in exported goods. That shows a very dark future for the British economy without a Brexit deal!

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The European Union and the companies operating in the EU hardly depend on parts from the UK. The United Kingdom and the companies operating in the UK depend massively on parts from the EU. Even with WTO policies in place in a no-deal Brexit outcome, the WTO policies can not force companies to supply or purchase. It is as simple as that!

Now have a look at the impact of COVID19 on the European and British economies. The booming years are over, downsizing and surviving are the new normal for the moment in the UK. Restructuring and realigning are the hot topic in the EU. Production capacities are under their optimal load globally. Markets are deflated and struggling to find the new mode of operation.

Without COVID19, Brexit was a very risky game of bluff poker to serve the establishment which saw their influence on “Great Britain” reduced to that of a spectator in a football match. The push for a no-deal Brexit is a final (and very desperate) attempt to outsmart the opponent by placing all chips on an already highly overplayed hand. With COVID19 disrupting the economies across the globe, the strategy by Boris Johnson and his cabinet is akin to applying economical sanctions on the UK by the UK…

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Written by

Dad, consultant, coach, speaker, author. Mainly Cyber Security, leadership, responsible tech and organizational change. https://johannesdrooghaag.com

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