Why the UK needs that BREXIT deal (Part 3)

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A major part of the “sales pitch” for Brexit, besides funding the NHS and stop immigration from EU countries of course, was and is all the trade agreements the United Kingdom could reach when it is no longer part of the European Union. “With trade agreements up for grabs” is a very common slogan among the British believers. And theoretically, that might even be the case.

Theoretically without having a closer look at the trade balance of the British economy. As soon as we take that closer look at the trading relations in hard numbers, we see that there “might be some challenges” with the theory that there are trade agreements up for grabs…

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7 out of the top 10 trading partners of the United Kingdom are member states of the European Union. Mr. Boris Johnson’s statement that he “is willing to negotiate trade agreements with individual EU members” only demonstrate that he either doesn’t understand the European Union at all, or he willingly continues to spread statements akin to funding the NHS with £350m per week. Neither did the UK pay £350m per week, nor does the NHS receive such funds now that Boris Johnson is in charge.

As soon as we look at the trading relations without the EU members, we notice that the United States and China are the biggest trading partners. Besides being entangled in an ongoing trade war and a never ending tit-for-tat tariffs exchange, these countries are looking for export markets, not for imports. Especially now that they can’t see eye-to-eye and might not do so for at least another decade. Japan exports, Norway exports (main supplier of LNG), even Turkey exports.

The often highlighted Common Wealth as the savior of the stumbling British economy is only represented with India and Canada in the top 10 without EU members. In the total balance including the European Union, the Common Wealth is shining in absence… There certainly is potential there but we also have to accept that negotiating such deals takes time. Years in most cases. And having to negotiate such deals as the desperate underdog with a stumbling economy will certainly not have a positive impact on that process.

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The balance between imports and exports of goods and services shows that the United Kingdom has a strong demand for goods and much lower demand for services, where exports of goods and services are almost balanced. Once again, the EU member states are the key players here.

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Since the European Union is a single market of 27 member states, all these states should be seen as a single partner. The British Government does not want to represent its trade relations like that because it shows that the EU represents roughly 50% of its trading volume. A trading volume which is at risk without a Brexit deal…

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Where the European Union as single market is the largest single trading partner for the United Kingdom, (almost) larger than all other markets combined, the balance for imports is even clearer. These imports are not only essential to supply and sustain the internal British economy, they also provide a growing share (40%) of components used in the exported goods. Indeed, the European Union is the single largest trading partner for exports and for the supply of parts to enable those exports!

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Trade surplus is what drives the economy of countries like Germany and The Netherlands. Unconditional trade surplus is what Donald Trump tries to establish with trade wars and tariffs. In total, trade surplus is what drives the European Union. To be able to drive through the coming tough times and economical downturn, further escalated by COVID-19, the United Kingdom needs to urgently establish a trade surplus with countries willing to consume more from the UK than they are supplying. Despite all the “we can do it” speeches by Boris Johnson and his followers, the trade relations do not show much opportunities in that area giving the role of the EU member states in the British economy.

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Ireland is the only EU member state with a trade surplus and the United States is looking at reducing the trade surplus. To generate the GDP that the United Kingdom needs to finance the badly needed restructuring and rebuilding of its infrastructure, the UK needs to either urgently find trading partners which are willing to accept a significant trade surplus, or boom its crumbling internal economy to unprecedented and non-feasible levels. Either way, the United Kingdom will continue to depend on imports from the European Union, or replace those member states with trading partners which will also replace the trade deficit…

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Services good be a safety-net for the British economy as the only segment in which the United Kingdom is (still) able to generate a trade surplus. The major challenge is however that roughly half of those services are supplied to European Union member states under the passporting regulations within the EU, which will end to apply for the UK at December 31st of 2020.

What remains is a country with an economy which is impacted by COVID-19 and a campaign promise which is contradicted by hard and harsh facts. A country which declared economical sanctions on itself by leaving the largest single market which they joined with a significant discount (“Thatcher Discount”). Economical sanctions imposed on itself by its refusal to contribute to the negotiations.

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Boris Johnson is famous for attempting to strike a last minute deal and celebrate himself for closing that deal as the great leader he and his followers believe him to be. In most cases, those deals are far worse than any of the drafts he torpedoed before the deal he made, with the Brexit-exit agreement taking the crown in his track-record of last-minute-bad-deals. Should there be a Brexit-deal, it will again be a bad deal. Too much time has been wasted by Boris Johnson in an effort to play his last-minute-deal poker. Valuable time in which the experts at both sides could have negotiated a comprehensive trade deal from which both parties could have benefited.

The United Kingdom needs a trade deal with the European Union. A no-deal-Brexit scenario will blow another painful blow to the crumbling British economy. But it will place more power in the hands of the establishment, and that is what the whole Brexit movement was all about from the beginning.

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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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