It may become a post-Brexit tradition that the Easter holidays are a time when the British media are full of stories about miserable travellers stuck at the port of Dover and debates about who is to blame. I wrote about Brexit Britain’s botched borders almost exactly one year ago.
Since then, the situation has not improved. It may very well be that next year, it will be even worse, because the EU will introduce additional fingerprinting and biometric checks in November.
Just how botched Brexit Britain’s borders are is further illustrated by various stories about musical bands, musicians from Ukraine, and school children, being refused entry to the country.
The botched borders problem is not limited to the movement of people though. There are increasingly worrying stories about the UK losing control over the safety of food imports, because the UK no longer receives intelligence from checks conducted inside the EU. A new system of post-Brexit border checks – the Border Target Operating Model – is still more than six months away and will not be fully operational before 31 October 2024. And of course, while that system may help reducing health and food safety risks, they also imply more Brexit red tape and thus additional costs not just for EU exporters to the UK, but also for UK companies and consumers relying on imports from the EU.
The botched borders problems are a particularly damning indictment of the failure of the Brexit project, given that the referendum was to no small extent won on the promise of ‘taking back control’ of our borders. One key reason why the UK government has been unable to take back control over its borders with the EU, is that it would much rather focus on trading with far-away places in the Pacific than with its neighbours across the English Channel. Partly, that is because signing new trade deals – however bad – makes for much better headlines than trying to fix the problems Brexit has caused for UK travellers and exporters.
What do trade deals do?
I know that I have written about the reification of trade deals many times before (e.g. here and here). So, I apologise to readers for the repetitiveness, but I will not stop calling out the nonsense that the government and other Brexiters say and write about trade deals and their economic impact. In fact, trade deals are the perfect object to demonstrate that the Brexit project is based on economic illiteracy or wilful ignorance of economic facts.
The UK’s recent joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is a case in point (I briefly wrote about it in one of my latest posts). It was hailed by the government as a major Brexit benefit.
The Conservative Party, - as well as Boris Johnson, and the Express – try to sell the CPTPP agreement by arguing that as a result of the deal ‘UK businesses will have tariff-free access to a market of 500 million, now worth £11 trillion.’ That statement is misleading in different respects. For one the £11 trillion is the total sum of GDPs of the 12 members of the CPTPP – including the UK. For the other, the UK already has free trade agreements with 9 of the other 11 members. The two new ones that are added through the CPTPP are Malysia (GDP of £300bn) and Brunei (GDP of £11bn). So, the difference in tariff free market access is £311bn not £11tn.
But these are not even the main flaws in the argument for CPTPP. Trade expert Dmitry Grozoubinski put it brilliantly: ‘Describing CPTPP as an "£11trillion trade deal" because its membership's GDP adds up to 11 trillion is like looking at the monthly user count and telling everyone you're romantically involved with 75 million people because you just downloaded Tinder.’
Indeed, the key question that most Brexiters seem unable to understand or simply choose to ignore is: what exactly do trade deals do to an economy? Specifically, what will CPTPP membership do to the UK economy?
According to the Office for Budget Responsibility (OBR) the answer is: not very much! As I mentioned in my previous post, the official estimate is that it will add on aggregate .08% to the UK’s GDP over 10 years. This seems minuscule and far from sufficient to offset the negative impact of leaving the EU single market, which the Office for Budget Responsibility estimates to be a reduction of 4%.
The government and people celebrating the CPTPP accession resorted to the strangest analogies to try and explain why the OBR’s forecast was speculative and the deal was transformative for the UK.
The strangest analogy of them all, perhaps, was Trade Secretary Kemi Badenoch’s likening the UK’s joining CPTPP to a big company buying a start-up. Her point seems to have been that you buy a startup because you are confident in its potential rather than what it is today. In her view, the potential of the CPTPP consists in the possibility that countries like Ecuador, Costa Rica, and possibly even China may join the club, thus increasing the size of the free trade zone the UK has joined.
The analogy, of course, makes no sense. Rather than likening accession to a free trade area to the acquisition of productive asset, it should be likened to paying for a stall at a farmers market or a trade fair. Indeed, access to a free trade area is only worth as much for a country as it has things to sell. And that’s the rub: As the Financial Times’s Alan Beattie pointed out, those things that the UK has to sell (services) are not covered by the CPTPP, while those products that are covered, the UK does not produce very much of (i.e. manufactured goods and agricultural products). Worse still, the few companies that do produce the things that could benefit from the agreement (e.g. cars) are likely to decline due to the fact that the UK is not part of the EU single market anymore, which reduces incentives to produce in the UK. Indeed, even patriotic, country-loving (but Monaco-dwelling) Brexiter Jim Ratcliff prefers to move production of cars inside the EU’s single market rather than continue producing in Brexit Britain. Beattie concludes that, ‘the CPTPP is basically irrelevant for the UK because it doesn’t produce the kind of stuff that might benefit, and Brexit means it’s less likely to start.’ But that sort of basic logic seems lost on Brexiters who instead busy themselves with the most absurd mathematical contortions to try and save Brexit from reality.
Brexiters’ anti-maths mindset
It is a hallmark of Brexiter economics to quickly switch from claiming that it is too difficult to assess the impact of Brexit on UK trade and the economy (e.g. because of confounding factors like the pandemic) to ‘it is very simple’ (e.g. when rejecting sophisticated methods to estimate that impact in favour of naïve schoolboy maths).
This leads to economically and mathematically illiterate explanations of why ‘Remainers’ are wrong about the costs and benefits of Brexit in general and of CPTPP membership in particular. A recurring example are the writings of Robert Tombs – specialist of French history of the late 19th and early 20th century and co-editor of Briefings for Britain. His recent article in the Spectator zeros in on the EU membership fee to explain why Remainers are wrong about Brexit’s impact on trade. He estimates that the UK’s net membership dues were between £8bn and £11bn in 2018. Therefore, any reduction in post-Brexit trade with the EU (which he estimates between 3% and 5% and hence between £5-8bn at 2019 prices), would have to be seen in relation to the cost of membership.
Tombs seems unable – or more likely unwilling – to understand that such a naïve calculation does not even start to capture the complexity of Brexit’s economic impact on the UK. For starters, while the EU membership fee used to come out of the public coffers, EU funding flowing back into the country did not only go to the UK government, but also to private sector actors including for instance researchers in universities through research grants. This means that most accounts of net contributions to the EU budget have always been exaggerated, because they would not take into account the latter payments. More importantly, this implies that while the UK government may be saving money that would have been paid as membership fee, it is not the government that mainly suffers from the consequence of losing EU funding. Most importantly, as people are now finding out, there is no guarantee that the UK government will use the money it saved from the membership fee for the same purpose that EU funds were earmarked for – most importantly perhaps regional development.
Similarly, the membership fee was a cost to the UK government’s public finances and not having to pay it constitutes a saving for the Treasury. Yet, that of course does not mean that this saving somehow offsets the harm the new trade barriers do to UK businesses. The point seems almost embarrassingly obvious, but given the level of dishonesty of Brexiter economics, sadly it needs to be made.
Tombs’ suggestion of simply deducing the membership fee from the amount by which trade has been reduced is hence absurd. (Incidentally, his estimation of a 3-5% reduction of trade due to Brexit is underestimating the actual effect according to recent ONS figures, which estimates it at around 9% compared to 2019. If we use the ONS’s conservative estimate of a 9% reduction compared to pre-Brexit/pre-pandemic times, then Tombs £3-5bn trade reduction becomes more like £9bn and thus within the range of membership fee he claims the UK paid of £8-11bn. So, even on his own flawed terms, the calculation makes little sense).
Tombs goes on to say that “our annual exports (in surplus) to [CPTPP countries] are running even now at £60 billion” and that therefore a “mere 10 per cent rise would more than offset losses in exports to the EU.”
Again, many things are wrong with this facile calculation. For one, it is unclear where the £60bn figure comes from, but based on the government’s own data, it clearly includes exports of both goods and services (which taken together amounted to around £57bn in 2019). Like I mentioned above, one big problem with that figure is that services are not covered by the agreement and therefore may not obviously increase after joining the CPTPP. One could argue, that some business services are related to goods, e.g. after-sales services such as installation, repair, and maintenance – so there may be some positive effect on services from increased exports of goods (if that were to happen), but given what the UK has to sell, how far away these trading partners are, and that we already have FTAs with most of them, it seems highly unlikely that this will lead to the sort of increases in trade Tombs is hoping for to offset the reduction in EU trade. This is all the more the case that Tombs neglects the fact that ‘shallow’ FTAs like the CPTPP tend to generate ‘trade diversion’ rather than only ‘trade creation.’ In other words, in many cases exports are diverted from trade with non-FTA members to FTA members rather than generating new exports.
Given Tombs’ facile calculations, for once I have to agree with Sunak that the ‘anti-maths mindset’ in the UK is damaging the economy.
Sustainability
Beyond the purely economic and monetary questions, one particular concern with the UK’s joining the CPTPP has been the impact on environmental standards and habitats. In particular, the UK’s concessions to Malaysia to accept the removal of tariffs on palm oil, whose production constitutes a sever threat to rain forests and their ecosystems, has led to criticism and concerns. Trade specialists argue that the real world impact of the removal of already very low tariffs may not be as dramatic as feared, but the case thus illustrate that the UK government will not hesitate to undermine current environmental standards to get a trade deal. Conversely, Shanker Singham was probably one of the most honest Brexiters lauding the CPTPP not so much for any economic benefits, but for pushing the UK down the road of deregulation, which would make a rapprochement with the EU more difficult.
Trade experts and economists generally argue that having an FTA is always better than not having one, even if it does not add much to aggregate economic performance. That may be true from a narrow economic perspective, but certainly not when environmental and social factors are taken into account. Indeed, it is not sufficient to purely focus on aggregate macroeconomic statistics to assess the impact of trade on a national economy. Yes, having a .08% uplifted in GDP seems – all else equal – preferable to not having it. Yet, the aggregate impact of a trade deal on economic growth – however small or large –, does not help the worker whose job has disappeared due to import competition, or the farmer whose farm is no longer viable as a result of reduced barriers to trade.
Indeed, free traders like to point out that ‘[t]rade liberalisation over the past 50 years has lifted hundreds of millions of people out of poverty and there are countless people alive today because their governments opened up their economies and embraced free trade.’ That figure is overwhelmingly driven by China who’s joining the world economy since the 1970s has led to dramatic changes to average per capita GDP and household income. The flipside of that development was that on the other side of the pacific (and elsewhere), millions have seen their living standards and jobs decline due to the increased competition that cheap imports from China represent for local producers. MIT Professor David Autor has called this phenomenon in the USA the ‘China Shock’ and has shown that the devastating impact of China joining the WTO has had on the previously industrialised areas of the mid-west in the USA. A similar effect has been found for the case of the UK and has been linked to voting for Brexit. Indeed, trade experts point out that the benefit of FTA is oftentimes not more exports, but cheaper imports. Cheaper imports are great for consumers, but they may be disastrous for producers and workers.
Global Britain, domestic pain
The delusions of grandeur that drove the Brexit project over the Global Britain cliff, tragically inflicts most pain on those whose suffering led them to believe in the promise of a Britain that can defy gravity and geography.
The BBC ran an article reporting that ‘big firms [are] a lot more confident about the future,’ because energy prices are coming down and ‘Brexit problems ease.’ Yet, commenting on the findings, Deloitte’s chief economist conceded that "[i]n many ways [the survey] mirrors what we are seeing at household level. The difference between the haves and the have nots is widening." Indeed, while big companies and the well-to-do may have the resources to absorb the Brexit shock, small manufacturing companies are in a very different position, as recently published research by David Bailey and his team shows. In other words, big businesses like INEOS may quite literally be able to defy geography by trading the UK for tax havens or places inside the EU’s single market. Smaller ones, on the other hand, are subject to the iron law of trade gravity, which is pulling them back from the lofty hights of Brexiter promises to the hard ground of reality.
Given the disaster Brexit has been so far, it is understandable that the government and Brexiters want the British public to gaze into the distance towards the Pacific region, rather than looking too closely at what is happening at home.