EconoMatters, Rethinking Europe

UK: Abandoning Europe, Connecting With Whom Instead?

Brexit divorce will need a good lawyer – and a hot new “girlfriend.”

Credit: Number 10 - www.flickr.com

Takeaways


  • How can Britain rearrange its economic partnerships after exit to ensure the best possible future?
  • All its ex-brides see Britain as a part of the overly bureaucratic, protectionist EU.
  • If Britain leaves the EU, it needs to find a new girlfriend with whom to make a new trading arrangement.
  • The obvious new girlfriend for Britain is the beauty queen across the Atlantic (aka, US), within an enlarged NAFTA.

Those favoring Brexit — which, tentatively and on balance, I do — therefore need to have two plans in place as quickly as possible. The first plan is on how to win the referendum and achieve an exit from the EU.

The second, without which the first plan is useless, is how to negotiate Brexit in detail and rearrange Britain’s economic partnerships following exit to ensure the best possible future.

In other words, how should Britain’s lawyer (presumably Cameron) negotiate the divorce from the EU? And where will Britain find the new hot girlfriend (or by all means, Britannia being a lady, boyfriend — or indeed Significant Other)?

Lady Britannia: Post divorce loneliness?

Without the latter, the country will be condemned to a post-divorce existence of loneliness and penury.

As in most divorces, the primary emotion is deep regret at having got married in the first place. With 63 million people on a small island, the British economy is service-oriented. It boasts only limited manufacturing and lacks self-sufficiency in foodstuffs, energy or raw materials.

Accordingly, its natural trading partners are countries with abundant raw materials, energy and cheap food. As of 1960, Britain had such trading partners, in the countries of the Commonwealth, both the white-dominated Dominions and the ethnically varied, but impoverished remainder.

What’s more, until Maynard Keynes, with incredible foolishness, negotiated it away at the Bretton Woods Conference of 1944, Britain had a structure in place to take advantage of those relationships. It was called “Imperial Preference.”

That system erected a modest tariff wall around the Empire and Dominions, while promoting free trade within its borders.
 
Had British negotiators in 1944 had the sense they were born with, they would have dismissed with scorn the U.S. request to do away with Imperial Preference. After all, that system was at last creating a viable alternative trading bloc to the heavily protectionist United States itself.

Even by 1960, while the structure was mostly (not entirely) gone, the trading relationships with the newly independent ex-colonies remained. An enlightened Britain could have focused on them.

The alternative was Europe. But Europe was heavily protectionist and dominated by manufacturing interests. It also boasted a hopelessly inefficient and expensive agriculture. All of that made it an unattractive partner for Britain to choose.

Looked at from the vantage point of 2015, Britain’s EU marriage in 1961-73 was a terrible mismatch. What the hell were we thinking of?

Out of Options?

Needless to say, Britain’s attractive ex-girlfriends of fifty years ago have mostly made alternative arrangements elsewhere:

1. Canada has now joined the United States and Mexico in NAFTA.

2. Australia and New Zealand have become almost wholly Pacific-oriented.

3. The African ex-colonies are torn between a somewhat indifferent United States and the apparently ardent but possibly abusive China.

All these ex-brides consider Britain, the old flame, rarely if at all. They see it just as another part of the overly bureaucratic and protectionist EU.

Thus, any new friends Britain may find to help her exit the EU must be dealt with on an entirely new basis. The old economic ties are simply not there and even the sentimental ones have worn very thin.

Open to the world and free love?

The IEA’s prize-winning essay, Iain Mansfield’s “A Blueprint for Britain” took the view that Britain can flourish outside the EU by being “open to the world.”

In principle, this is right. Britain has always flourished as a global hub, doing business with countries from all different cultures (albeit from time to time making life easier by colonizing them).

In a truly free-trading world, this would undoubtedly be the most attractive alternative. However, we do not currently live in such a world.

The failure of the Doha Round of trade talks launched in 2001, innumerable “anti-dumping” actions and the increasing plethora of bilateral and regional “free trade agreements” all point to one conclusion. Protectionism, while not rampant as in the 1930s, is certainly on the advance.
 
Complete openness to a protectionist world doesn’t work. Britain tried it before, from 1846 to 1932. The era of global free trade, on which Britain’s 1846 Repeal of the Corn Laws had been predicated, eventually came to a halt.

The eventual consequence of Britain’s economic unilateral disarmament was industrial decline and the loss of its economic supremacy. Economic disarmament, like military disarmament, is an attractive idea, but it needs to be multilateral. Unilateral disarmament, military or economic, is a road to disaster.

If Britain is to leave the EU, even if it retains a free trade agreement with the EU like those of Norway or Switzerland, it needs to find a new “girlfriend” with whom the outlines of a new trading arrangement can be made.

Without showing the British electorate the prospect of such an attractive new partner, the electorate will reject Brexit, rightly seeing it as a recipe for international isolation. Britain has no real option to compete, as it did in the 1862-1932 period, as a free trade nation in a protectionist world.

The bewitching NAFTA

Needless to say, while Britain is easily large and robust enough to survive as an independent economic entity, it does not have its relative strength of 1862. Nor does it have its colonial possessions of that date. So it cannot hope to prosper against universal tariff and non-tariff barriers.
 
The obvious new girlfriend for Britain is the beauty queen across the Atlantic and its northern neighbor, with Britain perhaps entering an enlarged NAFTA.

The problem with any such match, of course, is that it might involve almost an equal loss of independence as was involved in connecting to the EU.

As a part of NAFTA, Britain would have equally little ability to affect the terms of the arrangement as with the EU now. However much we may regret the Error of 1776, the chance of undoing it appears to be limited.

Japan? Africa?

There are other alternatives. Britain’s best non-European buddy other than the United States, historically, has been Japan. However, Japan has in many respects the same strengths and weaknesses as Britain. So it is not a particularly attractive potential bride in this case.
 
The old Commonwealth offers much better pickings, in some respects better than in 1960. Canada and Australia have perhaps realized the dangers of being excessively tied to their powerful neighbors in the United States and China, respectively. If that’s the case, they might be open to a new arrangement. 

As for Africa, while some countries (notably South Africa) have not yet emerged from their inevitable post-colonial angst, there are an increasing number that have. Indeed, many African countries have capabilities that are nicely balanced against Britain’s.

And while Britain may appear to offer less to them in return than China or the United States, we are notoriously nicer to our girlfriends than China. So at least some African countries may be receptive to our approaches.

India: Déjà vu all over again?

What about India? Under Narendra Modi, the country appears to be getting over the half-century of socialist post-colonial angst represented by the Congress party.

As a result, what is soon-to-be the world’s most populous nation may well be interested in entering into at least a limited arrangement with Britain.

India would today be far more confident of its position in such an arrangement than it would have been a generation ago. The danger here comes on Britain’s side. Matters such as mutual migration would be very difficult to agree on.

However, with the U.S. government committed to the Trans Pacific Partnership, which does not involve India, a limited arrangement with Britain could be attractive.
 
Finally, there are the four countries of western Latin America that have formed the Pacific Alliance – Mexico, Colombia, Peru and Chile. There are no significant long-term cultural ties with these countries, but an excellent economic fit.

The Pacific Alliance has both resources and cheap labor. Its alternative partners, China and the United States, both have a track record of domination that it will find unattractive. So a loose arrangement with Britain could well be desirable to it.  
 
Finding a potential hot new girlfriend, as suggested above, will not be easy for Britain’s conservative leadership. And without it, the British public will be frightened into a pro-EU vote.

And while that is indeed how things may turn out before long, given the failings of the EU’s economic policy and governance and its innate bureaucracy, British voters will almost certainly regret such a vote for generations to come.

Editor’s note: Adapted from an earlier version published on the True Blue Will Never Stain blog.

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About Martin Hutchinson

Martin Hutchinson is the co-author of Alchemists of Loss: How modern finance and government intervention crashed the financial system (Wiley, 2010) and a Contributing Editor at The Globalist. [New York, United States]

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