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For the first time since the end of World War II the international economy is on a path of disintegration, with growing barriers to trade. The resort to protectionism in the United States, the consequent tariff war with China and disputes with Mexico and Canada, are the main outcome to date, with Brexit to follow. In less than three months there may be no secure basis for trade between the United Kingdom, one of the continent’s largest economies, and the rest of Europe.
The first moves by the US administration were the withdrawal of the US from two major trade liberalisation deals that were in the works with Europe and trans-Pacific.
But the European Union has continued with trade liberalisation, concluding new deals with Canada, Japan and, most recently, the Mercosur group of South American countries
This was followed by spats with Mexico and Canada, resulting in a roll-back of the North American Free Trade Area, threats against the EU and an escalating tariff war with China – enough on its own to threaten a worldwide economic slowdown, according to the IMF.
But the European Union has continued with trade liberalisation, concluding new deals with Canada, Japan and, most recently, the Mercosur group of South American countries.
What has been happening these last few years will intrigue historians, because it represents a decisive break with a trend under way for over half a century. The world trade and financial system had to be reconstructed, virtually from scratch, commencing in the 1950s, through tariff reductions and financial liberalisation through new organisations like the General Agreement on Tariffs and Trade (now called the WTO, the World Trade Organisation) and the International Monetary Fund.
In a no-deal crash-out, the UK loses preferential trade access to its European neighbours
That liberalising process was led by the USA and Britain, two of the victorious allies in the war and, ironically, the drivers of its deconstruction.
Brexit should be seen against this background. In a no-deal crash-out, the UK loses preferential trade access to its European neighbours, but also the benefit of the EU’s extensive arrangements with countries around the world.
A no-deal crash-out is now the declared policy of the UK government, for which expensive preparations have been ordered. These are designed to induce a better deal from the EU, which the EU has repeatedly dismissed as impossible.
The last few weeks have seen a further weakening of sterling, unhelpful for Irish exporters
If you were choosing a time to go it alone in international trade, the UK could not have found a less-promising environment at any stage over recent decades.
The last few weeks have seen a further weakening of sterling, unhelpful for Irish exporters, and tariffs and other trade barriers could become a reality in November, not just on the Northern Ireland border but also on east-west trade across the Irish Sea – which is nine times more important. Whatever barriers arise on UK trade with Ireland will also apply on trade with continental EU members under no-deal, as early as November next.
The Tories lost a by-election in Wales last week to the Liberal Democrats and one of the issues was the future of lamb and other sheepmeat exports to the EU. Welsh agriculture is heavily dependent on sheep. But so are many other areas in the UK, which has 23m sheep, of which about 40% are in Wales, versus just 3.6m in the Republic.
Roughly one-third of UK sheepmeat output is exported to the EU and the entire trade could become suddenly unviable.
If no-deal goes through in November, UK sheep farming, not just in Wales, faces immediate crisis
The annual export total is about 100,000t, coincidentally the annual increase in beef imports to the whole of the EU arising under the Mercosur proposals and which caused such a reaction.
If no-deal goes through in November, UK sheep farming, not just in Wales, faces immediate crisis.
The Johnson government responded with a back-to-the-future promise: the government will support the market, buying up the unexportable surplus, reminiscent of the beef mountains and wine lakes of the intervention period.
The UK would end up reprising a physical intervention policy widely criticised in Britain at the time, yet another ironic dividend of Brexit.
There simply is not enough cold storage capacity to deal with the quantities likely to be slaughtered
But the intervention promise may not be deliverable. Storage space in the UK logistics system will be stretched anyway because of Brexit, as many sectors will see greater requirements for stockholding, and there is a seasonal demand peak every autumn.
There simply is not enough cold storage capacity to deal with the quantities likely to be slaughtered. What is to be done? Funeral pyres of unsaleable British lamb will not make nice television pictures to accompany a post-Brexit general election, which some commentators believe to be the Johnson game plan.
Unless the EU blinks, contrary to oft-repeated policy.
The brinkmanship of the no-deal threat should not deflect from the reality: the UK can accept the deal on the table, crash out with none, or revoke the Article 50 resignation letter unilaterally. If the government chooses the no-deal option, the Welsh sheep farmers will be first in line.
SHARING OPTIONS: