The art of the deal: Brexit is about more than just tariffs

Europe's World

Citizens' Europe

Picture of Luke Graham
Luke Graham

Member of the House of Commons, 2019 European Young Leader

Any student of political economy knows and understands the benefits of international trade. Through comparative advantage and mutual benefit, nations and peoples are brought closer together and experience increasing prosperity. In the 18th and 19th centuries, trade and diplomacy was underpinned by significant European empires that blended trade and military action to gain access to markets and secure foreign government support. In the 21st century, the majority of the world’s countries adhere to the international order and participate in trade through the World Trade Organization (WTO) and bilateral or multilateral trade deals.

In spite of the galloping pace of globalisation, liberalism has once again met its nemesis – nationalism. As this trend re-emerges, the political discourse has moved away from arguing the benefits of international trade and the inequitable spread of wealth it has generated. This is not a failure of the electorate, it is a failure of national governments that have not tackled the structural inequalities and the year-on-year real-term increases in income. This lack of action has destabilised democracies and reduced economic growth.

Brexit, which is often pitched as a simple ‘in or out’ binary, has thrust the British Parliament into the latest battle concerning international trade and globalisation. The debate is focused upon the United Kingdom’s future relationship with the European Union – forcing a dichotomy: either the UK can have a close economic relationship with EU, accepting EU regulations to access the Single Market and participate in the Customs Union, or it can fall back on WTO rules and tariffs to have complete legislative freedom.

The moment a country starts exploring a trade deal with another, tariffs and non-tariff barriers (NTBs) come into play

Taking the WTO approach, a ‘Global Britain’ could trade with everyone as a friendly nation, reaping and sharing benefits. This is a fine theory. However, the moment a country starts exploring a trade deal with another, tariffs and non-tariff barriers (NTBs) come into play. These mechanisms provide a unique insight into the culture, economy and values of potential trade partners.

Take the United States as an example. Across the pond, federal standards on foods and other goods differ substantially from the EU’s. For agricultural and pharmaceutical products, America’s large-scale and high-value economy means that different standards have evolved. The US-UK trade relationship evidences the tensions between diplomacy and trade – the prospect of a new free trade deal between the two does offer economic opportunities.

A potential deal could result in the lowering of tariffs and regulations on food and drink, including American beef, Scotch whisky and British cauliflowers, potentially offering consumers more affordable products. However, the NTBs of Federal and British certification also come into play – will the British accept chlorinated chicken as readily as they accept their chlorinated salads? Will the Americans really open their financial services and insurance markets to their established and highly competitive British counterparts? The lobby groups in each country will apply pressure to ensure they are not sacrificed at the altar of a ‘great, amazing’ deal.

Although the EU makes up a significant amount of British trade, potential deals with the US, China and India could provide a counterbalance

These highly technical discussions on tariffs and NTBs are then overlaid with the cultural and political context of each nation. Statements of many British Conservatives and Labour Party members indicate that they do not want to acquiesce to Donald Trump’s US, while Congressional Democrats have threatened to veto any trade deal that does not adequately address the Northern Irish border post-Brexit. Thus, the seemingly easy and simple trade deal becomes a political and diplomatic yoga movement – complete with compressions, tensions and very little chance of an early release.

As the UK starts to consider its prospects, it must acknowledge that if it chooses to forgo EU standards and frameworks, it will need to pick others to conform to. Or, in true free-trader style, will the UK opt for an open economy and just follow the standards of whomever its companies sell to? This is a choice the UK will have to make. Although the EU makes up a significant amount of British trade, potential deals with the US, China and India could provide a counterbalance. Whichever direction the UK decides to take, the values and standards of its new trading partners will quickly prove to be as important as the tariff schedule itself.

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