Brexit: Why Rescue by Trump, Meaning Via a US-UK Trade Deal, Is a Fantasy

It has been astonishing to see the UK press tout yet another Brexit delusion: that the UK will show up those nasty Europeans by cutting an awesome trade deal with their new best buddy, Donald Trump.

We’ve discussed long-form how the UK is in hot water with its Brexit plans regardless. The EU is hanging tough on not starting any sort of Brexit talks until Britain pulls the Article 50 trigger. The EU treaty stipulates that departure happens in 24 months irrespective of whether an exodus has been tidied up . Pretty much everyone agrees that a Brexit by default rather than a negotiated Brexit would be worse for the UK. And while there is a mechanism for extension, it requires unanimous approval of the 27 remaining states. The UK is so widely disliked in the EU that no one expects an extension to be granted.

And here is a partial list of other problems the UK faces:

Lack of adequate staffing to man the Brexit talks thanks to years of budget-cutting. Where can they possibly find more bodies to handle bi-lateral trade talks in parallel? The specialists at the big-ticket accounting an law firms are too narrow to be very good. Worse I am hearing private reports that extremely experienced experts cross-European law who’ve put out feelers regarding Brexit gigs have been ignored…and were quickly snapped up by the EU side.

Near-impossiblity of getting any new trade deal in place in two years1. And contrary to what the press keeps saying, there is no default to the WTO. That has to be negotiated like any other trade and services deal. The WTO has said it will not give the UK priority.

Risk that the EU will bar the UK from undertaking other trade talks before it has completed its exit. By treaty, the UK cannot negotiate other trade pacts until it is out of the EU. The EU has incentives to enforce this rule. Does it have the means?

Certain damage to important UK export sectors. European countries would love to take a piece out of the City. The ECB already tried to get Euroclearing moved to the Eurozone. The only thing that prevented that was an ECJ ruling that said the ECB could not discriminate against a member of the EU> France has already started making rules to expedite getting Euroclearing on the Continent. UK banks continue to announce plans to relocate staff to Europe, and every bank of any size is scouting for office space Another important export business for the UK is aircraft parts manufacture for Airbus. All that activity will be migrated to European parts-makers once Brexit has commenced.

Theresa May has been grasping at the straw of an offer by Donald Trump to give priority to a US-UK bilateral trade deal. But just because The Donald gets on with Boris Johnson and Nigel Farage does not mean that a pact with the US will be a salvation for the UK.

Trump has put the US on a mercantilist footing. The UK is an exporter to the US. The US is bigger than the UK. On top of that, the UK is desperate and under time pressure. Either one puts a negotiator in a weaker position; the two in combination are deadly. This chart from the Financial Times shows the UK’s balance of trade and services with its major trading partners:

That alone points to high odds of an unhappy ending to the UK’s “US as savior” fairy tale. And when you get more granular, it does not look any better. Here are the major export sectors with the US:

Financial services. Do you think an Administration chock full of ex-Goldmanites will give UK financial firms any quarter? Mind you, the US is willing to chat about some City-friendly ideas, but it’s unlikely they’ll go anywhere. Again from the Financial Times story:

Apparently a system such as “passporting” — the automatic mutual recognition by which EU financial institutions have access to each member country’s market — is under consideration for a UK-US trade deal. But the recognition of regulatory systems across the Atlantic was a big stumbling block in the Transatlantic Trade and Investment Partnership talks between the US and the EU. (The key sentence from the public statement of US objectives: “we will continue to ensure that our government retains full discretion to regulate the financial sector”.)

Transportation. Trump has made getting auto company jobs back into the US a big priority, since they are highly visible and historically were the anchor of manufacturing wages generally. Moreover, the demands of just-in-time manufacturing means that at least some parts suppliers find that it behooves them to have operations within reasonable proximity of the final assembly plant. So he has every reason to play hardball here.

Similarly, there’s no reason to think Team Trump will look kindly on the idea of having UK suppliers to Airbus try to displace US suppliers to Boeing. Their only hope would be to shoulder aside any fabricators in Mexico, again assuming Trump doesn’t try to force that production across the border.

Pharmaceuticals. Although the US is an overly-zealous defender of intellectual property, and hence drugs under patent, Trump has started making noise about pressuring drug companies on prices. If he actually follows through, it’s not hard to think he’ll go after foreign firms first. So all Trump’s friendship may mean is Novartis, Roche and Sanofi will have the screws put on them before Glaxo.

And any deal with the US will entail the UK making concession. For instance, the Financial Times points out the risks to now-protected UK sectors. For instance, Australia, an agricultural powerhouse, learned in a 2004 bi-lateral trade agreement how zealous the US is zealous about promoting its Big Ag:

Australia made some unpopular concessions, including changes to its public drugs purchasing scheme at the behest of the US pharmaceutical industry, and received little in return. The country’s famed beef and dairy exporters achieved only a little more access to America’s protected agricultural markets, and its super-competitive sugar farmers essentially none. Studies tend to show the deal at best diverted rather than created trade, and has been of little benefit to Australia’s economy.

The UK risks the same thing. There are several agricultural sectors including beef and poultry in which UK farmers are currently protected by high EU tariffs, which the US will undoubtedly ask to be cut. Mrs May’s political opponents have also wised up to Washington’s likely demands to relax EU-mandated hygiene rules, including restrictions on chicken meat cleaned with chlorinated water, beef fed with growth hormone and crops grown with genetically-modified organisms.

There is more at stake, though, than the squeamishness of British consumers. If the UK accedes to the US’s demands on food rules, its farmers will find it harder to sell into the EU market, currently their largest single customer, unless they expensively adhere to multiple standards of production. This clash of regulations shows that the prize for the US is not just access to the UK’s market, but establishing precedents for talks with other large economies.

Reread the last sentence from the quote. The US has many good reasons to take advantage of a particularly vulnerable UK. No wonder Trump is so keen to have the UK walk into a trap and even worse, be grateful whatever they get. Politically and practically, any agreement with the US would be better than none.

1 Some Brexit boosters cite the 2004 bilateral trade deal between Australia and the US that was completed in less than a year as proof that trade deals can be completed quickly. While it is true that a pure trade deal, as in one involving only physical goods, could be completed in less than two years, pacts that involve services to any meaningful degree take much longer. Given that financial services is the UK’s biggest export to the US, it’s hard to think it would be completely quickly. Moreover, it’s almost certain that the pressure to wrap up the agreement quickly came from the Australian side, since Australia was one of the few to join the Iraq Was “coalition of the willing” despite 94% opposition to the war among the Australian public, an unheard-of level in polls. Prime Minister John Howard no doubt felt the need to show some benefits of being loyal to the US. But as the story of the results of the negotiations shows, even with the US in theory needing to reward Australia for its service, they didn’t come out very well from the deal.

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    1. Yves Smith Post author


      We are airbrushing out a lot of history, aren’t we?

      1. The UK has been consistently hostile to the EU even while a member and has repeatedly trash-talked the project. It has been difficult to work with internally and many of its representatives have acted as if Brits are racially superior. So there is no good will whatsoever on a personal level. And the Brits chose to make it worse by making Boris Johnson the Foreign minister. I gasped out loud when I read of that appointment. It was more of the same when the UK needed to learn to act like a grownup (go read a biography of Talleyrand to see how a master diplomat operates).

      2. Cameron tried to negotiate an improved deal when the UK already had an unusually favorable arrangement. He came back pretty much empty handed.

      3. The Brexit referendum was a ploy in an intra-Tory power struggle. By all accounts, Boris Johnson didn’t want to win, but the press largely favored Leave and the Leave campaigners made a much more attractive case than Remain did in the TV debates.

      4. May has been completely dishonest with the electorate by perpetuating myths that were sold to the voters: that they would regain national sovereignity (false, as a small open economy, you have to obey a lot of foreign rules in order to trade and provide services to them), and that the UK would be able to stop taking EU immigrants yet stay in the single market.

      A more skilled politician than May would have been able to discuss how “Brexit” had not been well defined, and would have gone on a huge tour of the North to explain the tradeoffs to voters and see what they wanted. But tamping down the well-deserved outrage would have also required doing some things that were un-Tory-like, like building lots of housing in communities where the natives were facing pressure from migrant influx.

      Instead she has decided to play a game of chicken even though the EU made clear from the outset that they will not swerve. The EU has far more mass than the UK even before we get to its considerable disadvantages in this encounter.

      This isn’t revenge. This is politics. The EU is out to look out for the best interest of the EU. And Brits are naive to think otherwise.

      1. aab

        Is May not talking to voters a function of lack of political skill, or just the neoliberal perspective that those beneath are beneath for a reason, and if there is no alternative, there’s nothing to discuss?

        This seems like a corollary to Hillary refusing to campaign in a meaningful way in the Rust Belt. I’m sure many factors played into that, but on a fundamental level, she had nothing to say to them. She wasn’t going to change course, and apparently the Democratic Party elite and their funders had reached the stage where either the pols felt they’d get in trouble with the funders if they threw the plebes some pleasant lies, or they all thought they could now start transitioning to telling people the awful truth and get away with it. So she didn’t want to or couldn’t lie, so why show up?

        England sounds screwed at this point. It can’t even feed its people now, if I’m understanding the situation correctly. How could elected leaders of an entity defined by geographical borders and history think this is okay? I realize many other countries are facing similar problems (including us/US), but if you step back from the monetizing frenzy driving this and considered “nation” as having any meaning at all — which it clearly should for an elected national official –this is madness. I know the thinking was if the elite knit themselves into one well-fed family feeding from the same global trough, they wouldn’t go to war against one another. (I love the implied acknowledgement that the “little people” are never the ones pushing for war, just doing the dying.) But that didn’t work in Europe when the royal houses were LITERALLY marrying each other and breeding together. And what about some kind of external force, like a massive earthquake in just the wrong place shattering the global supply chains? I did not realize until I started reading here how difficult it would be to undo these arrangements logistically. I thought it was entirely an issue of political will and corruption.

        I thought I was past being shocked at what the neoliberal project has wrought, but every time I blink, I discover yet another element that is horrifying.

        And to tie back to the piece, the House of Lords is just going to block Brexit, right? Which strikes me as another whole can of worms for class tensions in England.

        1. Yves Smith Post author

          Actually, belief in neoliberalism means belief in the “free trade” oxymoron, aka globalization. But some of the Tory backers of Brexit (not all but a pretty significant contingent) were “small Englanders”.

          I am sure that part of it is that the Tories are not willing to go to the heartlands. But a big chunk of it appears to result from May’s limited political experience. She was only previously Home Secretary, and appears to view Brexit from wanting to limit immigration. Yet the polls showed that that was not the top issue for any group voting for Brexit. And if she was not rigid on immigration, she wouldn’t be stuck with a hard Brexit.

          The House of Lords won’t block Brexit. But they will probably impose conditions on negotiations and require the Government to get further approvals at various stages.

          1. aab

            Thanks for the specific response, Yves.

            I knew about the “small Englanders,” but I guess I didn’t really believe that they weren’t fundamentally ALSO neoliberals. Like, I thought that the Tories that really did want to push Brexit through (that’s what’s going on here, correct? May has been elevated despite her limited experience because she honestly wants Brexit?) thought they could just eat cake: cut back on immigrants, keep everything else. I was thinking of it as being like how the Republicans here drum beat against immigration, but are functionally neoliberal. But now that I think about it further, the Republican elites have been trying to “reform” immigration to keep cheap, disempowered workers coming, haven’t they? It’s the base that has pushed back.

            I still can’t believe this is going to go through. If Lords won’t block it, I guess it gets through Parliament because even though most Tory MPs don’t really want it, the party loses face and possibly power if they stop the train they fired up to begin with, and they’re the majority. That’s it, right?

            Man, Western political institutions are really, REALLY broken.

            Also, I don’t really get how May can be a “small Englander” and ALSO a member of Big Finance. Does she not understand how the industry she worked in and her husband still works in actually operates?

          2. Paul Greenwood

            Actually BreXit is about Self-Determination. It is about having control over legislation and not being stuck in a Planned Economy and Dirigiste System.

            It is about being allowed to dredge rivers to prevent flooding instead of EU banning river-dredging. It is about not having EU Regulations go into force without being discussed in Parliament and ALL legislation coming from EU Commission

        2. Paul Greenwood

          Why cannot UK feed itself ? It has 34 million sheep. It has huge cereal farms. It has orchards. The UK could easily cut food imports if supermarkets changing buying patterns. No need to import mushrooms from Poland.

      2. vlade

        Absolutely, especially your last point. The UK politicians seem to forget that EU has its own politicians, who have their own constituencies which are not beholden to the UK in any way whatsoever.
        “Roll over, we’re British” last worked about 120 years ago

      3. JRH

        Partly but more nuance needed.

        UK-EU Animosity started even before the UK entered what was at the time the EEC, rember De Gaulle block UK entry in the 60’s. The current animus is merely the latest expression of distrust that flares every so often. To suggest that it is driven by the UK actions alone is just silly.

        Cameron (and the majority of the higher levels of UK bureaucracy) did not even try for a deal hoping they could get away with a sop. They did not factor in that the EU is not just fracture in the Tory Party by the whole of UK politics. It is better hidden in other parties.

        As to regaining of national soverignty – that is not false, it is of course a sliding scale. Removng the ECJ as the final court of appeal, return to Common Law system over a European/ Civil system, rights over fishing etc. All these are really only achievable outside the EU. Are you truly saying that none of this achivable ever? Of course none of this may come to pass but it *is* possible, whih is a different thing.

        Indeed each will need to look after their own interests, the “be nice” mentality of UK “Remain” supporters not “Leavers”. The actions of the government in several respects have been lukewarm how far this is driven by May’s own principle free politiking can be discussed ( she was a Lukewarm Remainer remember.)

        PS you repeat the balls that many banks are looking to lleave London, from where I sit in the City this is not wholesale movement, the numbers are small and relate to operations that require to be within a jurisduction. So trust me Paris and Frankfurt will not benefit. London will still be the European centre of finance.

        Has May bee

        1. Yves Smith Post author

          The estimates I have seen is the UK will remain subject to over 60% of EU laws in order to trade with the EU. The ones it will no longer be subject to are ones that UK citizens overwhelmingly favor, environmental and labor regulators. The billionaire who backed UKIP did so with the intent that a UK out of the EU would have low labor standards and lower wages. Many of the Tory Leave backers had the same goal.

          My City sources give higher estimates of staff that will go to the Continent, 20%-30%, with a high skew in terms of average wages. And Amsterdam is likely to be the big winner. There’s space near the airport that could be readily developed.

          1. nutchuck

            Many of the Tory Leave backers had the same goal

            The above re labour laws is not going to happen, no one is calling for it (even those you would expect to be doing so are saying the opposite).

            I don’t think this is down to a change of belief but hard pragmatism. Brexit has thrown the whole blue color constituency up for grabs to UKIP and the tories. There is a once in a lifetime chance to change the political landscape by prising them away from labour – they’re not going to risk this by taking away employment rights.

          2. Paul Greenwood

            They will just love Dutch labour law. Anyway I hope Netherlands takes all that Debt onshore and UK transfers it over. Gordon Brown took all that offshore debt onshore in 2008 and used Henry VIII Powers to suspend FSMA 2000 and Monopolies Law

      4. Freddie the rainbow-colored Frog

        NC hyperventilating on Brexit again is getting boring.
        After a long-winded rant you eventually note this is politics. Yes!
        There will be a compromise.
        Apropos the headline “Brexit: Why Rescue by Trump, Meaning Via a US-UK Trade Deal, Is a Fantasy.” Yes!
        And water is wet.

        1. Yves Smith Post author

          You seem to have missed that the May and much of the UK press really believe that the UK can secure a great deal with US, setting a good template for other trade pacts and that it will also considerably offset any harm the UK will suffer from diminished access to the single market.

          Similarly, we regularly get angry comments from Brexit boosters, although they might have given up on us as beyond redemption. But go click through on either of the FT articles to which I linked. You’ll see most of the comments are hostile to criticism of Brexit. And this is from a paper which by nature is heavy on City readers.

          This is thus far from “water is wet”. And we clearly labeled this as a Brexit post. If you are bored with this topic, you should have the maturity to skip articles that don’t appeal to you rather than complain. I don’t read the sports pages but I don’t begrudge their existence. Other readers like these posts as both our traffic levels and comments show.

          1. nutchuck

            I’m with you Freddie. NC had a strong editorial line on this from the outset. As it did on the Greek crisis.

            Unfortunately I believe that in both cases this has meant their coverage has lacked any balance and that it is therefore hard for readers to pull out meaningful facts or carry out sensible analysis from what NC says. It’s for this reason that I have largely stopped visiting.

            There is a contrary view and NC should put it and I say this as someone who voted against Brexit.

            I don’t think anyone sensible (least of all Mrs May) is saying that there aren’t going to be a lot of challenges, dislocation and there are a lot of risks (short term and long term). However, that doesn’t mean there aren’t opportunities or that there aren’t some things that might just be a little better after we leave.

            I object that NC is seemingly completely to determined to assume that collectively as a nation we are so utterly inept, dumb and desperate that we will accept any deal from anyone or that if we fail to do so we will just crumble as a nation. Seems like Trump ain’t the only American blessed with a one eyed and arrogant view of things.

            Luckily for us Brits many of Yves’ compatriots are more sensible and less one eyed, will be fascinating to see if the massive level of investment into the UK from the US (and vice versa) holds up after Brexit. In my very limited personal experience the answer seems to be yes but am guessing that NC will have some facts and figures to the contrary? Would be great if they could share them.

            It’s also fascinating that NC has seemingly fallen hook, line and sinker for the PR campaign launched by the City that they will all leave and got and work in new industrial estates on the outskirts of Dublin/Paris/Frankfurt/wherever unless the deal is to their liking. We have been there before when they wanted us to join the Euro, they didn’t leave then. Clearly they want full access to the single Market but to be able to do this from business friendly London so they will repeat again and again that if they don’t get this they will leave to ratchet up the pressure. Doesn’t make it true. If they were going to leave and place themselves at the mercy of continental regulators and politicians they would have done so long ago.

            NC fails to question adequately, in my view, whether there aren’t just a few things wrong with the EU. An institution that is content to allow mass unemployment and social misery across large parts of a continent, including Greece – a country where black shirted men wander openly around on the streets of the capital etc…..

            If Yves really thinks continental Europeans (as in regular people, not those who have a supposedly informed view on how many jobs will be lost in the city) – she might well be surprised to discover not all of them hate the Brits. She should spend some time in Greece, it ain’t the Brits they don’t like there.

            1. Anonymous2

              I am a little doubtful you are a careful reader of NC . As I recall, Yves was quite sympathetic to Brexit as a concept originally but in recent months has focused on the Brexiteers’ failure to come up with a viable long-term strategy that does not involve long-term loss of income for the British people.
              As for Greece, you have clearly not read the many posts highly critical of the EU and Germany the site has put up over the last six years.

              1. nutchuck

                As I said I have largely given up reading but what I have read has been consistently against Brexit and was critical of any possibility that Greece could or should leave the Euro.

                Making a decision to leave the EU or the Euro is always going to be driven populism and not reason and not a detailed and nuanced analysis of the pros and cons coupled with a plan – as the hateful referendum campaign showed. So if you are in favour of either you either support the emotional populist campaign or accept it ain’t going to happen.

                Standing on the sideline and being politely critical doesn’t result in changes like this happening. You are accepting the status quo.

                With Brexit I think the tide of populism that it rode was never a price worth paying even if you think the EU is a bad thing.

                With Greece, in my view they should have left the Euro. Horrible short term pain but long term the right thing. I don’t believe NC ever gave this view a full enough hearing.

                Sorry, there is a very firm editorial line on the above issues.

                1. Binky

                  For both Brexit and Greece I feel NC did a great job in pointing out that there were practical issues that went unconsidered by pro/opponents of each and that these were not cost free and that the black/white dichotomy was inapt in both cases.
                  Greece could have done its own currency but that has costs and logistical requirements as well as implications that telegraph to lenders that you are about to flip the game on them.
                  Britain looks like it was played against itself. It’s never going to go back to coal mines, steel mills and sheep herders and the Empire is gone. Reticence to deal with reality on its own terms is not solely a British problem but the fantasy land of both the Brexiteers and Remain has failed to fix the issues for the majority of people and they, like the US, voted to Watch It Burn.
                  The Hilary hate is an area where NC has gone off the deep end in my view, falling prey to telepathy, fortune telling and paranoid fantasy, but it is for grownups who can think and I might be wrong. Hilary had a lot of negatives but thirty years of black propaganda won out over pragmatism, and pragmatism lost its sheen under Obama, who like the Clintons simply became the moderate face of the same forces that try to run everything anyway.

                  1. nutchuck

                    I agree it’s meant to be a blog for grown ups. I also agree that you read things hear that aren’t covered well elsewhere. But I think it came to a fairly definite view on both brexit and Greece which it didn’t need to.

                    I don’t see why so many comments on here assume that a vote for Brexit is a vote to return to the age of the British Empire. The most persuasive of all the brexiteers I have spoken to are anything but nostalgic or inward looking.

                    Granted there was a strong ‘little Englander’ element in the whole referendum campaign but the issues driving this were very immediate and legitimate and not driven by nostalgia – unaffordable housing, healthcare system under strain, crowded schools, low wage growth all against the backdrop of high immigration.

                    So I do find the insinuation that us Brits are somehow so dumb and arrogant that we think either we can turn back the clock a hundred years or that the world still owes us a living more than a bit insulting not to mention inaccurate.

                    We made a call, a wrong one in my view, that leaving the EU would give us a better degree of control to sort out the issues we currently face and to navigate the future. It wasn’t about nostalgia.

                2. skippy

                  Metaphysics and ideology aside….

                  England is resource poor with falling Pound and increasing trade headwinds[.] E.g. where will the VoM due to demand come from – especial in light of increased nationalism around the orb.

                  Disheveled… not to mention the City about to take mister toads wild ride only to find out its a blast room….

                3. Anonymous2



                  Also Yves comment on 4 April that the sovereignty argument is valid.

                  With regard to Greece, my comment was with regard to your

                  ‘NC fails to question adequately, in my view, whether there aren’t just a few things wrong with the EU.’

                  There is a vast quantity of material on this site critical of the EU’s handling of Greece as you would discover if you went back in the archives.

                  I have spent too much time on this and am now out.

                4. Foppe

                  That ‘leave come hell or high water, we’ll figure out the institutional and logistical issues as we go’ stance is uncannily similar to the one taken by those who went in to “democratize” Iraq by removing and killing Saddam, then destroying most institutions and local knowledge by banning all incumbent officials, and then wishing alternative structures into existence, and then being petulant when it turns out it “doesn’t work”.
                  Even when you have a backer who will fund your expenses and get you your necessities during the transition period (and Greece would probably not have had this), and everyone is allowed to work together, this is hard to pull off, especially in ~2y. How on earth do you think this will go without said backing? If it goes well at all, it will be because humanitarian concerns finally start to outweigh the pound of flesh-thinking that pervades our Thatcherite overlords. But the Euro can only be unwound deliberately, via treaty changes. Anything else will lead to bloodbaths.

                  As for the rest of your post: please separate in your mind ‘being against Brexit’ and ‘seeing near-insurmountable logistical/institutional problems, very few solutions, and candidly describing these’.
                  Institutions are real; bureaucracies — and bureaucratic “solutions” — exist to hide/”justify” structural violence. Yes, sometimes the rulebook is thrown out, but generally that oniy happens during panics (e.g. ECB after Draghi came in, and in the context of member state pols choosing to do fuck all, starting a QE program). But most of the time, it’s not allowed.

                5. Yves Smith Post author

                  Our view is not “an editorial line”.

                  It is an analytical conclusion, the same way were called the credit contraction in May 2007, correctly saw the official interventions in the first three acute phases of the crisis as inadequate and more was sure to come, were early to call out Obama’s responses to the crisis as inadequate and that his economic policies were throwing ordinary citizens under the bus to help bankers, were early to cover chain of title abuses, and as one former government officials said, “almost singlehandedly kept it from being swept under the rug”.

                  I could go on but I assume you get the point. We have a track record of being early and accurate.

                  Yes, we are critical of a Brexit because the Tories are going about it in the most lazy, reckless manner possible. They gave no though whatsoever to what the negotiating issues and timetables were.

                  And you keep ignoring the elephants the room: this was a half-cocked stunt for Boris Johnson to gain advantage. The public was duped and you have yet to wake up and see that.

                  Worse, the Tories have doubled down on their utter disregard for the welfare of the public. A Brexit will have very high transition costs no matter what. For UK to come out ahead in the long run, it needs the equivalent of a national economic strategy and it needs to pursue developing priority export sectors pronto. As Philip Pilkington showed using the data in the crisis, even with the advantage of being in the single market, the UK has such a poor export mix that a fall in sterling did NOT produce an increase in exports.

                  You seem to forge that our focus during the negotiations with Greece was to determine their likely trajectory and outcome. We were alone in seeing

                  1. That there was no bargaining overlap between the two sides and their bargaining positions did not overlap, which meant the negotiations would fail. Everyone else was of the “sure, they’ll somehow come to a deal” school.

                  2. That the creditors, via the ECB having the Green banking system on life support, had the ability to crush Greece any time they wanted to.

                  3. That a Grexit was unrealistic due to massive operational issue. And regardless, Varoufakis had rejected it for other reasons (macroeconomic, that it would do damage to the Eurozone and Greece would be badly hit in the blowback).

                  Regarding your Grexit comments, it is a near certainty you didn’t pay attention when the ECB effectively forced a bank holiday on Greece. In a mere two weeks, lots of businesses failed and the country was on the verge of food shortages, and was experiencing drug shortages and problems with fuel supply.

                  It would take a bare minimum of three years to get Greece onto a new currency, and more likely +150-200%. Greece would have its critical imports, food, fuel, and pharma, become well nigh impossible. People would die in large numbers and/or emigrate, and on a scale that means they’d be put into camps.

                  Greece is already teetering on the verge of being a failed state. A Grexit would kill people and destroy what is left of it as a country. And you accuse me of being unsympathetic in making such a rash and ill considered recommendation?

                  So here we saw things clearly but you are upset with us for not engaging in fantasies. And you are upset for precisely the same reason regarding Brexit. In other words, you like shooting messengers.

            2. fajensen

              I object that NC is seemingly completely to determined to assume that collectively as a nation we are so utterly inept, dumb and desperate that we will accept any deal
              I worked in the UK 10 years. There is an abundance of very smart British design and engineering businesses all over, great craftspeople too, certainly.

              The problem is: Those are all small businesses, 1 – 40 people, tops. Their “attitude” is safely contained, if you like. Nothing that will ever affect society in general.

              On the corporate / political side most, “actors”, are simply dumb-asses. Incapable and (if capable or willing to do good work) prohibited by “best-practices” and “rules” from ever being more than some cog in a failing machinery.

              The reason is, in my opinion, that if one does not graduate from the right school, know the right people, move in the right circles – one will have a very much harder time that “the proper sort of person” will. “Proper Sort” is very much a class thing, not an “Achievement”.

              The smart people with drive do not waste time struggling in the hierarchy and set up their own little business for their own sake, the smart people with less drive fill a slot for the money and get a hobby instead.

              So, yes, “as a nation”, “a nation” being defined for the public as the people why speak and act on behalf for that nation, you are unfortunately pretty dumb and inept. As a people, you are quite smart and resourceful – which one of course have to be to survive “The Laird of the Manor”‘s many follies and mistakes. But, it will not be the smart people who will negotiate Brexit, it will be The Tories and their cronies, with predictably mediocre outcomes. That the Daily Mail & Co will buff to shining perfection regardless.

              The EU has hundreds of problems. I believe that these can be fixed, and that they must be fixed.

              Because, we, the Danish are in a similar fix as the British with respect to our leadership: Inherently Lazy, Crooked, Snot-rollers and Navel-defluffers to a man, having relied on External Forces to push policies along for decades. If Denmark leaves the EU there would be no-one capable of governing for a decade or more. It is better to use the EU to route around the local (brain) damage.

      5. Matthew Cunningham-Cook

        The point about British concessions in a US-UK trade deal is important because while I think a quick deal is likely due to near-guaranteed chance of passage in the US congress, the biggest danger the deal faces is political inside the UK. May’s majority isn’t that big, and it seems like the least risky path for backbench MPs would be to vote no.

        1. PlutoniumKun

          The agriculture/food issue would be key – for some reason that baffles me, farmers in England (and many in Northern Ireland) voted Brexit. But a US-UK deal will almost certainly involve agreements highly damaging to UK agriculture – the US, as usual, will insist on it. While farmers in the UK have probably less political influence than in any other major country, there are still lots of Conservative MP’s beholden to a farming constituency (plus NI Unionists). Many of them are farmers, very dependent on subsidies for wheat and corn. They will find a US/UK trade agreement very hard to swallow.

          Add that to many Tory Daily Express and Mail readers who are obsessed with ‘things in food that might give you cancer’, and you have a big potential problem for May.

      6. Scott

        The UK could build a bridge & then wing in ground effect system for trucking between the UK & North America as a major boondoggle & infrastructure project.
        Well just nix the long bridges and go for heavy lift Wing In Ground effect. Canadians may have a taste for whatever it is labor in the UK makes.
        Last I lived there Canadians were even buying Ladas.
        I’ve read that UK labor is undesirable for showing up with obsolete tools & an attitude.
        Still the EU can beat on the UK all they want, the ECB & German Bankers showed where they were when it came to Greece. France might want to crow about a perceived win, but they will get it too.
        There is the alliance between London & Wall St. All that does for the majority is send more of them into wage slavery.
        People are saying it is great that Benito Trump got elected since the real need to revolt will get lit and the flames will burn the rats.
        Everybody is simply playing with fire.
        Like burning leaves it won’t last long in one spot, but may spread, or may not.
        I can myself only sense the self satisfied Financiers will wreck their own ship, like they wreck their yachts whenever they take the helm without a competent captain.
        The meek will inherit the earth, is relative.

      7. Paul Greenwood

        You are clearly favourably disposed towards EU. UK spends €10 bn membership fee to run a €100 bn trade deficit with EU and house 5% Poland’s population. The trade deficit cannot be reduced within the EU and Germany runs a permanent trade surplus 9% GDP.

        The options are simple. Germany has exploited the EU and deflated economies just as it deflated its own domestic demand. You don’t see the potholed roads, collapsing bridges, decaying housing stock, decrepit schools, moribund bureaucracy. Germany is living the Brezhnev Years and turning into GDR.

        UK must leave. It is interesting it is far easier for UK to go to war than to withdraw from EU.

        Netherlands, France, Italy, Denmark will break away. Poland is not viable without UK as a member. UK exports to EU are overstated by Rotterdam and Antwerp Effect. I am not sure N Sea Oil and Gas will be affected by EU tariffs which is major component of exports.

        Bavaria depends on UK – Audi, BMW, Siemens – and Bavaria pays the bills inside Germany. I think the EU will implode without the UK.

    1. Eustache de Saint Pierre

      Of rocks and hard places – I do suppose however that in these tempestuous times, that in terms of the time it takes to reach full agreement on these trade deals, that political events, particularly in the EU, could overtake them.

  1. Jeff


    I read the persistent messages from Yves that UK is preparing nothing for a “decent” Brexit, so let’s suppose we are in April 2019, and no EU agreement and no (new) WTO agreement and no bilateral agreements yet.
    I can see borders going up in weird places (between Eire and N-Ireland, between Gibraltar and Spain, ..)
    I can see that UK looses its passporting rights, which will kill its financial sector shortly.
    But what would stop Airbus from continuing to use its UK factories? Or UK from importing meat from NZ or toys from China?
    Is there a ‘lowest’ baseline documented somewhere?
    Thanks in advance.

    1. vlade

      Airbus can continue its factories. It can even send the stuff out to EU. But in addition to tarifs (no idea how much), they would immediately be stopped at the border, a sample taken, and at the cost of the impoter tested whether it passes EU norms and regulations. Which can take days or weeks (depending on the complexity).
      Two or three days in, there would be no space to park the lorries/ships, because there’s not just enough space in the custom compounds. So lorries would slowly cover East of England, and ships the Canal.

      Importing is easier, especially from countries from outside EU, as you can make whatever rules you want. But UK must export to survive (or borrow a lot from strangers, who may not be so keen to do it at good terms anymore).

      1. andy blatchford

        This isn’t correct as you are treating all goods the same (it is likely there will be queues either side of the channel but that is to do with staff to complete customs entries, system capacity, checks of around 10%…that will be a problem definately, the testing is very rare, can think of only once in 20 years I have had that, some promotional t-shirts that went into India).
        But for Airbus no, and there aren’t tariffs on those ‘goods’ as they are ‘end use’ they aren’t domestic consumption goods. They are ‘controlled’ via end use procedures but companies in that business are already registered.

      2. Yves Smith Post author

        I knew someone had addressed the issue and Airbus parts supply is indeed at risk.

        From PlutoniumKun on 1/18:

        The issue of both car parts and Airbus parts illustrate precisely why the British will get their lunch eaten. The UK companies which supply Airbus are not part of EADS (the main contractor). The role of the UK in Airbus is peripheral due to the refusal of successive UK governments to get involved in such corporatist set-ups. I suspect that all Airbus contractors in the UK will be informed that they must move to France if they wish to continue to supply parts. It will be that simple. And there is no way that they could find alternative markets in the US in the timespan, so they will do that. The Europeans will fear Trump will try to block Airbus sales (for example, to Iran) by blocking US contractors from supplying parts, so they will be working hard to onshore everything within the EU. This will also apply to military programmes, which is a strong sector for the UK. BAE will really struggle, it will be informally shut out of a lot of European projects.

        1. andy blatchford

          That’s fair enough and I would expect that to be the case but it isn’t about tariffs as tariffs are about domestic consumption. Aircraft parts (and some ship spares, oil rigs that sort of thing) don’t attract tariffs they are as I said ‘end use’ goods.
          For a while I was based off site at an aircraft engine overhaul centre, the engines were broken down and parts sent all over the world and then came back to the centre for the engine re-assembly, that included non EU countries. These things are very strictly monitored including paperwork for even small rubber o-rings…No paper trail for example certs of conformity etc wouldn’t get put into an engine.

  2. RenoDino

    No coincidence that Trump starts his first week feasting on the UK and Mexico. The sellers are highly motivated and real estate mogul Trump smells blood. May needs a deal to secure her standing and Mexico needs a deal to avoid revolution and the overthrow of the plutocrats. Trump would prefer this outcome since it would mean the return of ALL manufacturing to the U.S. and the bankruptcy of Carlos Slim, owner of the NYT. Then that wall would really come in handy.

  3. Strategist

    A great post, many thanks.

    To start first with a digression: I don’t know if LT is a professional troll, but he has had the effect of one – getting in first under the line with a quick one liner which immediately sends the comments thread down a different path to the one indicated by the main post. A general thought –not necessarily directed at LT –never feed a troll, or wrestle a pig.

    Now few random reflections from here in London: I can’t explain why the clear sight Yves is showing from a distance is so lacking here at Ground Zero of Brexit (other than the wonderful Yves isn’t our’s). We are so, so screwed, and the wilful failure to see it can only be denial. As a dyed in the wool, deeply patriotic Bremoaner (remain-voting, referendum result unaccepting moaner) I am so torn between thinking the UK completely deserves to get the kicking it’s about to get for being so f***g stupid (and the Brexiters need to learn that tough lesson), and realising that it’s my, my kids’ and my country’s future going down the pan when that happens. Not something done lightly.

    Some people here are gradually waking up to the fact that any quick trade deal with USA is going to mean Texas corporations destroying the National Health Service for breakfast and chlorine-washed chicken for lunch. A guy from the National Farmers’ Union was on the radio saying that British farmers were going to need animal welfare, human health and environmental protections lifted so they could get a level playing field with American meat coming in (as a good NFU agribusiness guy, he didn’t seem too heartbroken about that), but the BBC interviewer never thought to make Yves’s point that this would mean UK farmers’ exclusion from the EU market – a huge, huge problem for the UK food trade.

    (Yves – we should be grateful to you for this as it will make a significant contribution to the debate over here. )

    So, we are screwed and we know it, and so we deny it. There’s a meme going on here put out by a retired head of the civil service (Lord Butler – good name for a genial, classy servant) that if we could cope with World War 2 we can cope with Brexit. Apart from making me puke on the basis of how many more years can the British keep going on about a time that nobody aged under 85 can properly remember, what drives me crazy is that nobody seems to point out that we didn’t actually unnecessarily provoke and start that war.

    What’s so clever about the Brexiters’ framing in the media is that they have already set up the remainers to take the blame when it all goes wrong. As almost everybody who has the job of making Brexit a success (or limiting its damage) most likely voted remain, or can be accused of having done so, the Brexiters are already blaming everything portending the inevitable failure on fifth columnists. This will only get more nasty.

    One development breaking right now is the likely sudden death of the Labour party on 23 Feb. London Labour MPs like Tulip Siddiq representing seats where 75-80% of their constituents voted remain are resigning from Corbyn’s front bench team so that they can vote against triggering Article 50 (the supreme court having ordered this week that a new law must be passed before we can do so). Poor old Corbyn is whipping his party into voting Article 50 so that he doesn’t get slaughtered in the media for disrespecting the democratic verdict of the referendum, and thereby lose by-elections on 23 Feb in two of the most godforsaken Brexit-voting rust-belt towns of the North of England (Stoke and Copeland). Now he’s going to get slaughtered in the media for having a divided party.

    Lose these by-elections and it’s over for the Corbyn moment and for the Labour party in general. Ridiculous as 62% of Labour voters voted remain and the party was pretty united on remain pre-referendum. We’ll try and fight those by-elections, but the tide isn’t looking favourable. It’s all a goddamned shame because the Corbyn moment was a nice moment of light. To see 20,000 out on the streets of Liverpool in the summer evening sun to listen to the guy was to feel hope.

    How much worse can it get? A lot. My kids don’t deserve this.

    1. PlutoniumKun

      You put your finger on another crazy aspect of Brexit – it seems certain now that no matter how great a mess of it May makes of it, the likelihood is that the Conservatives will win the next election – Labour and the Lib Dems will be too weak to compete. I’m baffled by Corbin’s approach to this. Whipping his MP’s to vote Brexit will not win him any new votes, but will ensure Labour will lose many seats to the Lib Dems or even the Greens in many more prosperous urban areas. If anything called for a fudge, this did. Labour need to position themselves so they can firmly blame the Conservatives when it all goes pear shaped. They’ve failed to do this, a terrible own goal.

      1. Strategist

        I’m baffled by Corbin’s approach to this. Whipping his MP’s to vote Brexit will not win him any new votes

        Plutonium, Stoke Central, the parliamentary seat held by Tristram Hunt for Labour (until that asshole deserted the ship to take a job at the V&A Museum) has been called one of the Brexit-voting capitals of Britain. To hold it Labour have to see off Paul Nuttall, the new leader of UKIP, who is running. Corbyn needs to hold that seat, big time. I think you may be right that the three line whip was an error, but I can understand why the Labour leadership may have taken a different view of what the situation demands.

    2. nutchuck

      Cheer up strategist

      No one is in denial, it’s happening but you get on and do. The need to earn a living, run your business, farm your farm etc.. all remain constants. The view that somehow that leaving the EU means the lights get switched off and everything stops off is nonsense – if the last 6 months have shown anything it is this.

      My sincere belief is that long term it will make precious little difference, the economy will adapt (as it has had to do as we became increasingly integrated in Europe). There will be winners and losers, as there are now, but the world caries on. It’s largely for that reason that I couldn’t really see the point of anyone voting to leave and why I voted to remain.

      “Poor old Corbyn” has never been for the EU, if he had never been elected leader he would have campaigned for leave I’m sure. If your politics is to the left, if you’re a Cotbyn fan I’m assuming it is, long term I’d question whether being such a forceful advocate of remain is the way to go….

    3. Paul Greenwood

      Now few random reflections from here in London:

      Ah London…….so unrepresentative of Britain


    This hints at a larger, looming problem with this global wave of neonationalism. Right now the various leaders behind it are talking nice about each other, but the common thread here is that they want to abandon globalism with the conviction they can get better trade deals for their own countries in bi-lateral arrangements. But if everyone is going into these talks with the intent of pulling a fast one on the other party with neither side willing to give ground, these relationships are going to turn real sour, real fast.

    1. Altandmain

      It’s the side with the biggest surplus that might suffer the most is the thinking behind all of this.

      If there are tariffs, and a devalued Pound sterling, then there might be some manufacturing that comes back, even if it does result in a lot of short term pain.

  5. Expat

    The Brexiteers have some quaint notion that without EU membership Britain would recover its empire, become the largest economy in the world, and be able to kick out all the immigrants (including Pakkies and Indians). Britain has been delusional since the fall of the Empire, believing that the former colonies love them and that they treated them wonderfully while they ruled over them.

    Make Britain Great Again! i.e. Return to colonization, exploitation, concentration camps, wholesale slaughter of indigenous people, and rule by military force.

    Britain is a little, boring island with no industry and little enthusiasm except for the arch criminals in London and the City. Good luck going it alone.

    Disclaimer: lived there for ten years and worked in the City

    1. nutchuck

      Yeh, that’s right – I’m totally sure that everyone that voted Brexit so we could go conquer the world.

      I guess if you worked in the City for 10 years that would explain your patronising contempt.

    2. Paul Greenwood

      lived there for ten years and worked in the City

      You’ve seen everything then…..The City……..bit like the WTC summed up USA

  6. Inquiring Mind

    Re: “…Trump is so keen to have the UK walk into a trap…”

    Is that giving Trump (the man) a bit too much credit? His grasp of international trade deals doesn’t seem quite that deep. Maybe he is dumbing things down for public consumption…? (That feels generous after the initial Mexico dealings of late)

    Trump the Administration (i.e. career US trade negotiators) are certainly up to that level of thinking. My question is: do we think that sort of thing is coming from the top? Does his coterie of advisors even have that level of understanding of international trade dynamics?

    1. Strategist

      Inquiring Mind, listen to what RenoDino is saying

      The sellers are highly motivated and real estate mogul Trump smells blood.

      The details are less important than the basic facts, that UK & Mex are in a weak position. Read the Trump biog. He is nothing if not a guy who knows when to reduce the value of his second offer if the first one is rejected despite the vendor being in trouble.

    2. Yves Smith Post author

      He’s keen to get a deal done with someone eager to do a deal, unlike say, Mexico, who is being forced to renegotiate a deal. That’s already making both sides look bad.

      The UK needs to get a trade agreement done and even more so that John Howard 2004, will need to depict it as terrific no matter how crappy it is.

      Even if Trump hasn’t intellectualized his position, he’s done tons of negotiations. I suspect he can smell weakness. He knows he has the advantage, and he know the other side has to give the resulting pact particularly good press.

      By all accounts, Michael Froman at the US Trade Representative’s office was not very good at his job (we discussed at length how he was embarrassingly inept in dealing with Japan; it appears the State Department bailed him out). As one of the FT articles describes, the US dictates terms in bi-lateral trade deals. The USTR has a decent bench of career staff. All he need to do is tell them to give the UK deal priority in terms of timing, since Trump for his own reasons would be well served to cinch a pact.

      Heads of state don’t negotiate trade deals. They are way too technical. Impasses might get escalated to them. May has handled the Brexit prep pretty poorly, and she evidences no understanding of the economic issues whatsoever. Even if you have a very dim view of Trump (and he has tons of self-defeating habits), May has a very weak hand and has been playing it badly.

  7. Chris W


    Great info and analysis. As you point out there are considerable risks for the UK, including even potential breakup an fragmentation of the country. Every country wanting a deal is going to do so in their own interests, India, Australia, US and the r-EU are all examples.

    It was interesting, to hear the Australian reports, the other week, mention that free trade may be conditional on relaxed immigration/access to the UK, for example. Yet someone who voted for Brexit, stated without irony that hopefully a deal with the US may make it easier to work there, yet EU migration was made into such a big issue.

    It really is a mess.

    It still feels there is no real consensus or understanding of what needs to be done or how to get there. The UK is lost at sea, which as is pointed out above is not a strong negotiating position. (& when you need to be rescued anything looks good).

    It is an unfortunate situation when any attempt to discuss facts, options or be pragmatic in an article is still met
    with raised pitchforks by trolls in comment sections. It happens in the FT, Guardian, BBC, and even this blog. Expert opinion is still not valued, emotional arguments still prevail.

    Indeed many despair, others just have ‘hope’.

    Unfortunately, despite what is said, this does not appear to be about making logical decisions for the good of the UK population. It is clearly all about politics and particularly the politics of power.

    Individuals in the current government, the labour party opposition, the SNP, the tabloid press all see the Brexit vote as a vacuum to grab more power and influence for their own means.

    This is why the vote will never be revisited, the consequences of decisions are not being considered, there is suppression of logic and facts. And with the ‘mandate’ of a (very slim margin) referendum all checks and balances can be side stepped.

    The electorate all need to wake up that they have been and still are pawns in much bigger game. Their best interests are not being looked after.

    We live in strange times, very strange indeed.

  8. RBHoughton

    Wonderful original article and thoughtful debate – well done Yves. This is excellent.

    NC is one of very few sites where issues of importance are discussed in detail without the usual ideological or political agendas misleading the reader. We are lucky to have it.

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