Brexit: Digging In

Had Donald Trump managed the difficult task of having a bad effect on the already not well reputed Boris Johnson? The Tories’ posture toward Brexit says that could be the case.

Specifically, inebriated by the close-at-hand formal Brexit date of January 31, Johnson and more recently his Chancellor Sajid Javid have taken to making aggressive statements about the timing and content of a trade deal with the EU. This might normally be taken as posturing but the positions are so extreme as to be clearly delusional. As we’ll discuss, Javid staked out a very hard Brexit position last Friday and told UK businesses to pound sand. EU sources also reacted as if they didn’t see this coming.

One of the thing Johnson had been famous for, prior to his successful go for No. 10, is not sticking to his positions. But that changed as Johnson hitched his No. 10 star to Brexit. Admittedly, Johnson gave his “rather die in a ditch” blather about leaving on October 31, and then quietly swallowed an extension, He has been adamant that the UK is leaving the EU at the end of 2020, renouncing the option of taking a one or two year extension, to the degree that EU officials, who earlier saw this as more bluster, now accept that deadline as a planning assumption. Mind you, Johnson has taken that stance even though the best he could achieve in that time period is a very bare bones trade deal, and no services deal. And even that is unlikely; both Michel Barnier and Ursula von der Leyen have warned that it isn’t possible to come to terms on all areas in 11 months and the EU will set its priorities.

Johnson also acts as if getting a trade deal with the US would be some sort of masterstroke. In reality, as regular readers no doubt recognize, the US can do trade deals quickly because it dictates terms, meaning any agreement would be skewed to the UK’s disadvantage, and probably even more so due to US negotiators exploiting both political and timing pressures on the UK end to stitch something up. And as Chris Grey pointed out:

The geographic closeness of the EU and the volume of UK trade that results from that, as well as from decades of EU membership, makes a EU trade deal massively more important than any Free Trade Agreement with the US could ever be.

More pointedly, I can see the US wanting to sell more agricultural goods to the UK. No way will the US want to buy more auto or aircraft parts from the UK. Ditto financial services.

Brexit hasn’t been going well for the UK so far, although you’d never know that from the chest-thumping of the pro-Tory press.

UK Taking a Real Hit from Brexit Uncertainty

A Bloomberg analysis finds the UK economy will have taken a 3% hit due to Brexit:

Research by Bloomberg Economics estimates that the economic cost of Brexit has already hit 130 billion pounds ($170 billion), with a further 70 billion pounds set to be added by the end of this year. That’s based on the damage caused by the U.K. untethering from its Group of Seven peers over the past three years.

While growth globally has also cooled in recent years, the analysis by Bloomberg Economics shows the U.K. has still lagged. There is a strong historic correlation between the U.K. and G-7 countries. But they have been diverging since the vote to leave the EU, with the British economy now 3% smaller than it could have been had the relationship been maintained…

“Looking beyond 2020, we forecast the growth spurt in this year will be a one off — the economy will get a shot in the arm, but the cyclical lift that provides won’t last,” he [Dan Hanson] said. “As the U.K. comes to terms with its new trading relationship with the EU and grapples with the productivity challenge that has hindered growth since the financial crisis, the annual cost of Brexit is likely to keep increasing.”

Business Insider cheekily pointed out that this hit is on its way to exceed total EU dues paid by the UK:

Figures from the House of Commons Library put the UK’s total projected contribution to the EU budget from 1973 to 2020 at £215 billion after adjusting for inflation.

Javid to UK Business: Drop Dead

In an interview with the Financial Times last Friday, Javid took an aggressive form of the position that the UK would not be a rule-taker. Erm, this is tantamount to putting a gun to the head of the UK’s export sectors, since other countries won’t let in non-complaint goods. This will also subject UK businesses that enjoyed frictionless trade with the EU to facing the significant non-tariff trade barrier of new compliance and documentation requirements.

Mind you, degradation of the trading relationship with the EU was inevitable given that the UK rejected the administrative architecture that went with being in the single market, most importantly, accepting the jurisdiction of the ECJ. But even so, the Javid position caught many on the back foot.

First, from the Friday chat:

In an interview with the Financial Times, Mr Javid quashed any prospect of the Treasury lending its support to big manufacturing sectors — which include cars, aerospace, pharmaceuticals, and food and drink — that favour alignment with EU regulations.

“There will not be alignment, we will not be a ruletaker, we will not be in the single market and we will not be in the customs union — and we will do this by the end of the year,” Mr Javid said, urging companies to “adjust” to the new reality.

This may have been intended as a rebuke to van der Leyen’s mention that a quota-free, tariff-free relationship would be operative only if the UK adhered to EU rules. Nevertheless, UK corporations didn’t react well. From a Saturday Financial Times piece:

Britain’s car and aerospace industries have led criticism of government plans to split from European regulations after Brexit, warning it will cost “billions” of pounds and damage “UK manufacturing and consumer choice”.

The Society of Motor Manufacturers and Traders issued a statement after Sajid Javid, the chancellor, told the Financial Times that there would “not be alignment” with EU rules after Britain left the bloc, and that companies would have to “adjust”.

Carmakers at present are able to sell cars across the EU and the UK under one certificate.

The process, called homologation, involves expensive procedures such as engineering the vehicles to meet emissions standards. Costly crash tests are also required to meet the regulations.

If Britain abandons EU standards and sets its own rules, companies wanting to sell vehicles in the UK are likely to need to obtain a separate certificate to do so, increasing their costs of making vehicles specifically for the British market.

While Europe’s car market is 15m a year, Britain’s market is much smaller at 2.3m, a figure that last year dropped to a six-year low.

A senior aerospace industry source described Mr Javid’s position as unhelpful….

“We do need alignment, particularly around the European Union Aviation Safety Agency. And with Reach – the chemicals regulations. We are no different from the automotive industry in that regard. We are looking for alignment on both.”

Even fishing communities that voted for Brexit are now bleating for EU alignment:

Not only are fisheries important in and of themselves, but they are also set to be one of the first area to be settled. And the EU is taking a hard line: the UK needs to stick with current arrangements to get anywhere on other topics.

EU officials were also gobsmacked. From a Financial Times story today:

European diplomats and trade experts spent the weekend trying to make sense of comments made by Sajid Javid, UK chancellor, in an interview with the Financial Times on Friday. He urged businesses to “adjust” to a future where Britain no longer adhered to EU rules and regulations….

“In the end it is all rather simple: If Britain wants to diverge from EU rules, it will diverge,” the diplomat said. “Such an approach would obviously lead to new trade hurdles between Britain and the EU and in consequence less trade, less investments, less jobs.”..

The British finance minister’s comments….represent a shift in the UK negotiating stance. Under the political declaration signed in October as part of the so-called withdrawal agreement, the UK and EU27 agreed to uphold “the common high standards” currently applicable on both sides in the areas of state aid, competition, social and employment standards, environment, climate change and tax…

Regulatory divergence by the UK could also leave its crucial financial services vulnerable. Mr Javid said he sought trade with the EU on the basis of outcome-based equivalence of rules. The problem with this is that access can be withdrawn unilaterally by the EU if UK regulation strays too far from its standards.

The bloc’s approach to financial services will be based on its own independent “equivalence decision, not negotiation,” one EU official pointed out. The established process is that the EU decides if a country’s rules and su

You’ll notice this is a big change from the forecast by very-plugged-in Terry Connelley of RTE, who only a week ago, was anticipating a Switzerland-type deal of many bi-lateral mini-pacts. We were skeptical. Not only had the EU rejected that idea, and Barnier had signaled he wanted the negotiations to focus first on “capabilities,” meaning high-level mechanisms, and not sector by sector wrangling, but the Switzerland arrangement had evolved over time. And most important, Switzerland was part of the single market by virtue, among other things, of accepting the jurisdiction of the ECJ. It would be much harder to reach sector-level agreements in the absence of agreeing to EU rules and oversight. Recall that Sir Ivan Rogers has repeatedly warned that no trade agreement has even been made between countries seeking to become more distant, and he believed that would make the negotiations more difficult.

Moroever, Brexit ideology continues to trump national interest. It’s as if cleansing the UK of evil Continental influences will enable the UK to take a great leap forward. In fact, an isolated UK will be weaker and poorer than it was with its privileged position in the EU, where it exercised influence on rules out of proportion to its size. As Chris Grey explained:

In short, different kinds of Brexiter share a fundamental misunderstanding of the nature of the contemporary economic world. The globalists don’t understand that globalization has taken the form of a series of regionalizations. There’s no realistic way of being global without also being regional. The nationalists don’t understand that nationalism has been embedded within regionalism. There’s no realistic way of being national without also being regional.

It’s no good Brexiters saying ‘but Britain managed perfectly well before’: even if that were true, which is highly questionable, Brexit isn’t a time machine. The world that existed in 1973 has disappeared. In this sense, Brexit represents a profound strategic error for the British economy: if the most basic feature of a national (like an organizational) strategy is its fit with the realities of its environment then Brexit is certain to have a poor outcome because it is incompatible with the realities of regionalization.

In his latest posts, Richard North described how the EU has taken this principle even further by helping form or boost international standard-setters, in which it plays an influential role:

…what seems to escape the current breed of Tory trade zealots is the simple premise that trading in the world – i.e., buying and selling from foreign countries – does not necessarily qualify a nation as a major league global player. In the current environment, that would require a commitment to the much wider concept of globalisation, with serious engagement in the processes of integrating global trade systems….

Yesterday, I gave the example of UNECE and WP.29 in the formulation of standards for motor vehicles and parts, where the EU now works on a multinational basis with global trading partners to develop standards with global application….

No better example of this can be seen than in response to the VW emissions scandal, where vehicle emission tests were “massaged” to give far better results than could be achieved in practice. Now, we have UNECE working on global methodology to measure on-road car emissions, a process where:

The European Union, Japan and Korea are leading the development of the regulatory text that would lead to the establishment of a United Nations Global Technical Regulation on real driving emissions testing, which is expected to be adopted by 2020. The United States of America, Canada, India and China have also showed support to the initiative and are expected to participate in the development of the regulatory provisions, in a process which is transparent, data-driven and open to inputs from all parties involved.

In what is a fascinating development, we find the European Union, Japan and Korea working in partnership under the aegis of a UN body which will, in time, form the basis of EU law, but also extend to Japan and Korea through the EU’s comprehensive trade agreements.

But this is by no means the full extent of process where the EU has “bumped up” its standard-setting to another level. From the sublime to the ridiculous, the EU’s marketing standards for fruit and vegetables are now drafted by UNECE which works with the OECD in Paris to produce detailed codes.

By contrast, as North points out, the Brexit boosters are operating from a model of trade that is two centuries out of date.

Needless to say, some are predicting that the EU will find a way to muddle through, since it does seem to be particularly good at that.

But Sir Ivan warned long before the Javid remarks that the two sides were so far apart that negotiations could break down. And it isn’t clear to me how the UK would sign on to what amounted to a partial extension of the transition period. The EU would not break the single market for that, which means the UK would have to accept EU rules and ECJ decisions, or at the very least, ECJ precedents. I can’t see Brexiters swallowing that. It would represent a massive climbdown for the Tories.

At a bare minimum, once the negotiations really get going, it looks as if it will be a wild ride. Be prepared.

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  1. John A

    Up until the Thatcher years and tightened security, anybody could wander along Downing Street, a short cul-de-sac off Whitehall in central London. Now the street is gated off to outsiders.
    In response to a no to spending anything up to an alleged half a million ounds on a special 11pm chime of Big Ben, currently closed for renovation work, Johnson has childishly called for a huge illuminated clock to be projected onto 10 Downing Street at the appointed Brexit Hour. As, unlike Big Ben, Downing Street is inaccessible to the general public, one has to ask if this is really the most pointless of all the pointless gloating manifestations of the Brexiteers.

  2. vlade

    What I don’t get is the business optimism in the UK – and I’m calling it optimism, because it’s a clear belief that the government will see the light despite all the evidence to the contrary so far.

    What could (I’m not sure it would) make some difference is for example Toyota closing Sunderland and announcing move to the EU. That _might_ have some impact on Johnson.

    The thing is that so far the Tories had to pay very little price in terms of real costs for the Brexit. The 170bln is a counterfactual, there were some job losses due to small businesses closing, but it didn’t really make much in terms of national news, unemployment is still extremely low by historical standards etc. etc.

    Until and unless some real, widely-felt impacts start showing up, nothing will change, because why should it? The boy cried wolf way too many times so far (which of course, does not disprove existence of wolves, but makes people doubt that there are any nearby).

    1. Fazal Majid

      Er, you mean Nissan, not Toyota. I don’t think the factory will be closed outright soon, but investments there have already been frozen, and it will likely stagnate, slowly dwindle and eventually close. After all, the Japanese and Koreans were perfectly able to export cars to the EU before signing their respective FTAs, so there will be friction for the UK car maquilladoras but they will keep running as a the UK is a low-cost locale.

      The Labour party is seemingly doubling down on the insanity of the Corbyn era, and if Scotland gains its independence, it will cement Tory rule for decades. There is something in the English collective psyche that seems to revel in unnecessary callousness for the sake of itself.

      As for Javid, he had already long past reached his threshold of incompetence as Business Secretary, as shown by the mishandling of the British Steel fiasco (largely caused by Chinese steel dumping, something the UK vetoed the EU from taking action against). Now you could say the benefits to UK carmakers from cheaper steel outweigh the loss of the last remnants of British steel-making, but that was not a point made at the time.

    2. PlutoniumKun

      At a guess, the assumption among business leaders is that Bojo will make a huge fuss over the exit on 31/1, declare glorious victory, and then persuade the True Believers in the party that now its all over, they can focus on other things, like how to screw the poor over even more. While distracted, he will then make whatever accommodations are necessary with the EU to smooth over the impacts. And everyone lives happily ever after.

      I also see that house prices are rocketing again in the UK, so it seems the banks have loosed the floodgates for mortgages (perhaps encouraged by the BoE?).

      1. vlade

        It is a possible scenario, but one which could backfire for Johnson – Farage’s only relevance now is to be a self-appointed guardian of Brexit ideological purity. Of course, the question is, how much it can get him apart from the occasional beer now.

        Sajid’s comments though would indicate to the contrary, unless they are meant to confuse.

        1. PlutoniumKun

          I think we’ll only know Bojo’s real strategy (assuming he has one) after the 31st. Its possible he is just keeping the radicals happy up until the exit, then will rely on Brexit fatigue to ensure he can make whatever deal he wants after that.

          The Observer this weekend was reporting that all the new northern Tory MP’s are forming a bloc to ensure that their interests are heard – they are all Brexiters, but they are also very concerned about investment in the north. He may try to distract them with all sorts of proposals for special economic zones and suchlike, carefully crafting them so they can co-exist with a deal with the EU. He certainly won’t care about Grimsby fishermen.

      2. Redlife2017

        I also see that house prices are rocketing again in the UK, so it seems the banks have loosed the floodgates for mortgages (perhaps encouraged by the BoE?).

        Yes, this is going to be great. The hilarious part is that it is very difficult to actually sell the properties that have these giant price tags. We live in fantasyland.

        “In a nation ruled by swine, all pigs are upward mobile — and the rest of us are f****d until we can put our acts together: Not necessarily to Win, but mainly to keep from Losing Completely… The Swine are gearing down for a serious workout this time around… ” Hunter S Thompson, Comments on Fear and Loathing in Las Vegas in The Great Shark Hunt: Strange Tales from a Strange Time (1979)

      3. wilroncanada

        It’s all about perception. The government has more people with more expertise and more tools to massage perception than all the major media combined. In addition, major media are of two brands: lackeys to the government, or working hand in hand with government perception masseurs and in some cases in control of government perception management. Thirdly, governments are continuing to pass legislation which makes questioning their ideology either persecutable or illegal.
        This is true , by the way, of most governments now.

  3. The Rev Kev

    And to think – it only took them about three years and seven months since the Brexit vote to work out their business strategy to deal with Brexit itself. And what did they come up with? Breakthrough Or Bust.

  4. Mandel's Brot

    Something that baffles me completely is that when I first arrived in Europe in 1971, the UK was a basket-case. During a visit that year, I thought I had entered a Dickens novel of grime and deprime. Since joining the EU in ’73, the UK has rejoined the ‘first world’. At least in some ways.

    So is the pre-EU state of greatness of 1971 the one that brexiters aspire to? Yes, I am baffled.

    1. Synoia

      1971 – the year I emigrated from the UK.
      I was worse off financially working in London for the Nat West Bank
      than a student at Uni.

      And we were screwed over on overtime hours.

  5. Clive

    Not for the first time, Richard North talked a load of old rubbish in his post on international standards. He mentioned several industries.

    First he set up a straw man on the automotive sector which he claimed could respond to divergences between the UK certification and standards processes (which is a determinate factor in any UK/EU trade negotiation, but not the only one) but failed to mention that it is simply not possible in the short term to remove particular assembly plants and component manufacturers from the supply chain just like that. Assembly relies on component supply from multiple sources, but those sources never want to have single-customer dependencies. And there is significant cost-sharing between product lines of a component supplier in, say, the auto sector with other sectors (for example, a motor manufacture may supply the auto industry with a product, but that product line is at effectively marginal cost because the manufacturer sells far more motors to the consumer electronics sector). But if you were to change suppliers, say because you changed your manufacturing assembly base, you might not get such advantageous terms from another more localised supplier, because they don’t have precisely the same business model and diversification ability. I haven’t even gone into industries which supply the automotive sector where the suppliers enjoy patent protections or specialist knowledge which, like any intellectual property, are closely guarded industrial secrets.

    North implies that an automobile assembly line can be picked up from one location and dropped straight into another and, as if by magic, automatically be able to find the right component or sub-component suppliers in the right location making the right products at the right prices with the right surplus capacity to satisfy the manufactures’ needs. It doesn’t work like that.

    In any case, regardless of Brexit the EU often pays industries to move around through financial incentives. This does not necessarily work out to the advantage of the UK, e.g. Ford’s truck assembly relocation.

    North then turns to several other industries and glibly reads across the EU’s influence on international standards. It is here that he strays from merely stretched interpretations of manufacturing and supply chain integration into complete falsehoods. In his post he claims that the EU’s standards for several industries are adopted internationally. One he had the misfortune to cite was in air conditioners. This is a specialism of mine to the point of geekery, so I knew definitively he was spouting piffle.

    North claimed:

    EU regulations dictate what kind of air conditioners Americans use to cool their homes

    No. Absolutely not. They don’t. Not under any circumstances is this statement even slightly true. Anyone who makes this assertion (North was repeating it from another source, but he clearly didn’t see how and why it was so inaccurate) demonstrates they simply don’t know what they are talking about.

    Each regulatory regime (such as the US which is AHRI, the EU which is Eurovent and CE conformity, Japan which is JIS) defines its own standards applicable to its own market needs. Manufacturers then produce products which meet those standards. Since these standards, in their national flavours, all seek to do the same sorts of things (make safe products for consumers to use, meet international obligations such as the Kyoto protocol for refrigerants), in the vast majority of cases, it is simply a question of performing the appropriate product testing and certification to then be able to sell the same product in different markets. This is not the same thing at all as having to adopt any one regulatory regime’s standards.

    For example, here is the room air conditioner which I purchased (in the UK, to EU standards). Here is the exact same model sold in the US (to US standards including EPA Energy Star). Here is the Japan “home” market (the product is a real Made in Japan unit) spec, to JIS standards. One product. One country of manufacture. Three (at least, the same unit is sold in Australia and many other countries besides each with their own certification and standards schemes) different markets.

    None of the individual market’s regulatory requirements depend on the EU’s. No changes to the product were required to obtain EU market approval (simply re-certification of the original Japanese market product to CE and Eurovent standards). The fact that the same product can be marketed in many different regulatory environments shows how, in a global context, there is little divergence between different regulatory requirements — because all regulatory regimes are striving for the same basic things — safe products, environmentally certified products, products which contain permitted materials, and so on.

    If North cannot understand the difference between the causes of globalised markets (commonality in product designs and product standards because a global manufacturer only wants to have to produce a single product specification) and the effects (overlapping regulatory regimes which end up coming to the same conclusions about how products should work and from what materials they should be made of and permitting the same products to be sold in a lot of different markets), then he, along with a lot of other armchair experts, really should not add to the immense quantities of dross which get talked about when this subject comes up.

    1. vlade

      Hyundai got a factory working in the Czech republic in under three years from the moment of the site selection (2005) to the first car leaving the factory (November 2008). The actual building took 18 months. I believe there were factories comissioned in Slovakia or Romania even faster – those governments tend to go out of their way to smooth it.

      Given the Brexit delays and all, I’d not be surprised if Japanese had a bunch of shovel-ready projects, most likely for Bulgaria or Romania, possibly eastern Slovakia. They have a transition period of 11 months, so kicking a project off now would leave it with about 6-7 months of overlap.

      A lot of SMEs in the car industry does have only a single customer, because they do a specialised parts that are used only in some models, in certain ways.

      Either way, we’ll only find out as time comes by.

      1. Clive

        The assembly plant operation (and ability to construct it) doesn’t answer the question about where the components come from. Or eliminate the need to bring components in from where they have to be sourced. Screwdriver (i.e. basic assembly only) plants are quick, easy and cheap to establish. But the real work is done in wherever the components and sub-components come from. It would be interesting to learn, for example, on day-1 of the plant’s operation, what had to be imported from Korea simply because there was no choice in the matter.

        It will be very difficult, for example, for manufactures using Denso components (and Denso are a huge supplier to avoid reliance on UK manufactured parts. Ill-considered shuffling around of manufacturing operations (to try to solve a component supply problem) can lead to more difficulties than the original problem you’re trying to fix.

        And I’m not sure the case is entirely proven for “Brexit delays”. Who is going to be delaying what, and why?

        1. voislav

          I am a bit familiar with the car industry and from my experience the timing is right for the car manufacturers to dump UK like a hot potato. Components are never single sourced, a manufacturer always has at least two suppliers capable of producing a component and will split their production output between them (one manufacturer for model A and another for model B).

          To use your Denso example, manufacturers could switch their supply chain to Corning and NGK, both of which have more than enough production capacity to take over from Denso. Also, their product lines are closely aligned, so Corning or NGK part would be the same as the corresponding Denso part (other than the colour, which is a different story). Similarly with other suppliers.

          More importantly, automotive industry as a whole has substantial overcapacity at the moment, so it would not be difficult to shut UK assembly plant down and phase out the model produced at that facility without opening a new facility. Other production location would just increase the output to compensate. Similar for the suppliers, they can increase production as well, since they are not running at full capacity either.

          Over the last 15 years manufacturers have reduced the number of models they produce and the existing vehicles have transitioned to 2-3 common platforms for their remaining models. These have high level of component commonality so shifting production is much easier. Their assembly plants and suppliers have common tooling and can easily accomodate the shift in production.

          One thing that would not move is R&D, as those facilities are not as fungible. So, for example, I would not expect Ford to move out of their Dunton facility anytime soon.

          1. Clive

            The Denso plants do not manufacturer the same components. That’s why I linked to the locations page — different plants have different capabilities. Nothing there of course to say that a plant can’t retool to make different components. But retooling is a cost for the components supplier. They don’t incur retooling (plus training, subcomponent supply sources, quality approval and sign offs e.g. ISO Etc. Etc. Etc.) costs without a long-term contract in place with the customer (otherwise they incur the risk of the investment being wasted). This shifts the costs of components.

            Once you start pulling on these sorts of strings, you don’t know how your costs, risk and lead time curves will shift.

            I’m not saying it is impossible. What I am saying is this notion which is casually bandied about, the manufacturing equivalent of “hey, let’s just put the show on right here in the street” is only ever written by people who have never had to move a manufacturing operation anywhere.

            When Honda pulled out of the UK just after the EU/JP FTA agreement was signed, they didn’t relocate to the EU27. They reshored back to Japan. This addressed both the overcapacity in Europe issue and the fact that Honda is subscale outside of the home (Japanese) market. Each manufacturer constantly makes these decisions based on a huge number of variables all the time. To say that the UK remaining in the EU guaranteed that a manufacturer will retain its capacity in the UK doesn’t add up. Sometimes, like the Ford example I gave, EU incentives provide a push to move manuacturing outside the UK anyway. I’m pretty sure Jaguar Land Rover moving production into the EU27 got EU regional grants, too.

    2. Titus

      As always very well put. Richard isn’t to enamored of anyone making sound ideas contrary to his thesis of the day and I’m tired to my comments being labeled as spam. One hopes after 31.1 he’ll go to weekly postings. There have been several academic papers as to the EU and effects on product specifications, but you just said it as well as anyone I’ve ever read. It’s a very important point.

      1. Clive

        Yes, North didn’t understand that the Convention on International Civil Aviation was superior to EASA, didn’t understand that the Single Market in Services was not relevant to an economic operator introducing through a local subsidiary, patently didn’t understand enough about product conformity and certification to spot a blatantly obvious howler in a source and claims to be a Leave’er but doesn’t want to leave the EU (except on what is now commonly referred to as being a Brexit In Name Only basis).

        After a while, having encountered more than one basic error which undermines entire arguments and trains of thought, you have to stop treating someone as having any credibility left intact. I do sometimes wonder if he’s not some sort of False Flag operation. But I tend to discount that, if only because, if someone was minded to fund such a False Flag purveyor of supposed Leave thinking but use that as a cover for misdirection, they’d find someone who could do a better job of it than North does having been shown to be so obviously wrong on so many things.

  6. John Jones

    “Admittedly, Johnson gave his “rather die in a ditch” blather about leaving on October 31, and then quietly swallowed an extension,”

    And I thought facts were ( vaguely) evidenced based on this site? History suggests that the PM didn’t quietly swallow an extension, rather Parliament via HoC , forced the government to request an extension.

    1. John A

      However the extension was swallowed, Johnson clearly decided it was not a ditch worth dying in to prevent.

  7. DHG

    As I have said before, anything that would negate the full functionality of the current Anglo-American world power will not happen as this power goes to its death at the hands of Gods Kingdom while fully alive. Barring this they can play all the games they want, play nice boys.

  8. chuck roast

    Here is an alignment tid-bit. Back in the day when I was doing Air Quality I visited with some AQ staff in Portsmouth. We were doing US/UK comparisons of standards, monitoring, modeling and the like. Staff told me that people were having issues with their motor vehicles. Catalytic converters were failing on a large scale and they couldn’t figure out the cause. Some time later it dawned on me – the Brits were still using leaded gasoline, and the lead was blowing up the converters. We had recently taken lead out of gasoline here and the US auto-exports all were equipped with converters. I’m not aware that the press ever picked up on this.

  9. rtah100

    To play the devil’s advocate, could this be explain why the messaging would be for a hard Brexit? The UK does less trade as a % of GDP in goods than its EU counterparts. Moreover I suspect a disproportionate part of UK goods trade is really owned by EU corporates (the “Wimbledon effect”), e.g. Airbus, non-JLR car manufacturers, Pharma etc.

    Any form of Brexit will hurt UK but threatening huge short term disruption and costs threatens EU. It might be bluff but it provides another bargaining chip on top of fishing rights (which only really affect French and Spanish and Norwegians, possibly Dutch if they still have a fleet).

    Also, so what if the world has changed since 1975 (EC Act)? It has also changed since 1986 (Single Market), 1993 (Maastrict), 200x (Lisbon) etc. Single then, it has been Social Europe, End of History, Globalisation, War on Terror, Great Financial Crisis, Austerity and today the Gilets Jaunes and yet more to come. The important question is what will world look like in 2050 and is EU fit for purpose….

    1. Matthew G. Saroff

      I still believe that the UK will end up making it far more difficult for current EU citizens to continue to work in the UK in the event of a partial deal, which would have the effect of causing a collapse in the economies of some of the Eastern European EU members, particularly the Baltic States, who have had something like 15% of their population emigrate to other countries, (disporportionately the UK) and the remittances are now supporting their economies. (The result of their embrace of austerity was, to quote Tacitus, “Solitudinem faciunt, pacem appellant.” (they make a desert, and call it peace)

      I think that the UK will come out the worse for Brexit vis a vis the whole UK, but some EU countries are going to be absolutely devastated by a harder Brexit.

    2. Yves Smith Post author

      Please do more research.

      First, EU/UK trade is a much higher $ of UK GDP than EU GDP.

      Second, the UK has comparatively few export items: Services, particularly financial services. Transportation parts. Pharmaceuticals. The first two are sensitive to non-tarrif trade barriers, particularly any manufacturing. Supply chains run on just in time inventories. Dealing with a party in the chain where you used to be able to deal frictionlessly and now have to worry about building in inventory buffers isn’t just a matter of costs of holding the inventory….the plant may not even have space to accommodated the needed inventories.

      And as vlade suggested above, European automakers have excess capacity in their factories. If you don’t think they can’t shift a lot of that production, INCLUDING THE SPECIALIZED MACHINERY, from the UK to the EU over time, you are smoking something strong. They have very high incentives to do so.

      So you need to look on a more granular basis to judge which sectors would be less vulnerable to new border hassles hurting exports to the EU. My guess is pharma would be pretty immune.

  10. David

    I think the effect of Johnson’s formation of a Brexit-friendly Cabinet after he took over last year was to give absolute priority to Brexit as a political process, rather than an economic one. For Johnson, Brexit is a political objective in and of itself. To the extent that he (or even Javid) are capable of understanding and assimilating these arguments, they don’t give them any political weight. And why should they? Where was British commerce and industry during the last couple of crisis-ridden years? Where were the delegations to No10 and the threats of investment strikes and cuts in political donations? Where was the private sector’s support for Corbyn because he might have produced a less economically chaotic Brexit? The questions answer themselves. There’s no reason why the Tories should listen to the wittering of industry now.
    The reality is that Brexit has never been primarily about economics. It was Remain’s inability to understand this that lead to their defeat. There’s no reason to think that economic factors will be any more influential in the Brexit debate in 2020 than they have been for the last few years.

      1. Anonymous 2

        On the other hand, financial considerations may well play a role.

        I understand that some of the Leave leaders have already been paid (first instalments?).

        Looking to the future, I expect that US companies will be more generous than European ones.

      2. Yves Smith Post author

        Vlade and others have said (and there have been some mentions in the press to support this view) that No. 10 threatened business to keep its trap shut during the Brexit process or they’d be punished. You will notice that the first objection came early on….from Japanese automakers, of all people. So the silence of manufacturers and traders can’t be treated as organic.

        1. David

          No, indeed it can’t. But politics being what it is, now that they didn’t take their chance when they had it, for whatever reason, it’s too late. They can protest as much as they like but the moment when they could have been really influential has passed.

          1. Clive

            And the UK government did at least go through the motions of engagement with business. They still go to CBI shindigs, for example.

            “Business” (which in practice means multinationals with full-fat PR operations) was asked what it wanted, to which it replied that it wanted everything to stay exactly as it is at the moment. When the UK government let it be known that wasn’t going to happen, but what did business find would be difficult, in more frictional UK – EU27 trade, the most businesses could come up with was some muttering about having to complete customs declarations.

            Unsurprisingly, the UK government wasn’t exactly sympathetic — these are supposed to be the leading lights in international commerce and they can’t do simple paperwork? And, moreover, since by the end of 2020 all exporters would be live on CDS, which makes customs submission about as simple as it is possible to get (and complies with the new EU customs filing requirements due in 2021) it was hardly likely to be burdensome, at least, not alone sufficient to support a business case for wholesale relocation,

            It really didn’t, when push comes to shove, seem to amount to anything other than whinging.

            The CEO of BAE systems was doing the media rounds in Davos this afternoon and neatly illustrated the point about business, certainly multinational businesses, know which side their bread is buttered. He rowed back on much of the “disruption” talk and said it wasn’t anything they couldn’t live with, for EU standards definitions, these are just one element international aviation must comply with, there are many others and, in a roundabout way, let it be known they wouldn’t rock the boat too much and risk all those nice UK government pork barrel and subsidised corporate welfare. Airbus has recently done similar.

            Not all “business’ will react this way, of course. Some will get the hump and walk away. But only in response to a viable business case. If money is involved, and with international location strategy, it always is, they won’t do things merely to please a bunch of Remain’ers.

  11. JTMcPhee

    Lots of really smart people talk-talk-talking about this whole vastly complex “Brexit” situation set in motion by who knows what actual reasons and eddies in the Zeitgeist, just one small part of all the human interactions that make up the impacts of this species on the biosphere. Everyone selling their own stuff, looking for advantages or approbation, nobody and no set of anybodies having a real clue to what a species-survival based agreed set of principles and guides might keep the whole mess from imploding or exploding (20,000 nuclear weapons, giant data, AI, autonomous machines, cyberwarfare, CRSP-R and related tech, beyond-control financial products, corporations telling nations what to do, a dying empire and successors vying for command and control, dying soils, dying oceans with corps and nations carving up “rights” to strip the seabed, every picosecond the interactions in a complex system of complex systems getting more and more complex and subject to vulnerabilities and collapse. Just “gain” and “Profit” and “power.”

    Pray tell, all smart people, what’s it all about? What kind of political economy do “we” want, again? Whoever “We” happens to be? Who gets to say? Any agreement possible?

  12. George Phillies

    I said some years ago, that the original negotiations would fail, because the UK and the EU positions did not overlap. The EU pushed effectively against an ineffective negotiator (May) and as a result they got an agreement on Ireland that the UK Parliament could not and did not accept. One of the tasks of a lead negotiator is to explain to the other side that an agreement cannot advance because it will not be approved; Theresa May failed to do this. Part of the difficulty is that Europeans are accustomed to parliaments that function as rubber stamps for their party leaders — in Spain, a party leader can remove from Parliament any MP who does not toe the party line — and did not understand that it was not the duty of UK MPs to do what May said. Johnson did have the difficulty that Parliament forced him to take an extension, but the final result of that was that Johnson in the end forced a special election that left the Tory remain faction dead in the ditch and left the former Speaker out of his job.

    Now we see the EU proposal on dispute resolution under which the EU would get to decide when their court system gets to adjudicate disputes, a proposal so implausible — to my recollection, the Academy of Lagado is not located in Europe — as to lead one to wonder if the Europeans are affecting to negotiate while planning to blame the UK when negotiations fail.

    1. Gavin

      Of course negotiations are going to fail – and when BoJo realizes that his posturing neither impresses nor achieves, he’ll accept worse than what was initially offered and call it a Big Success. It’s Trump’s negotiation style – and outcome.
      Ironic, of course, that one of the many negotiations he’ll lose will be with the US.

      If you want access to the European market, you’d better understand that things that go wrong within the borders of Europe are the exclusive jurisdiction of European courts.. because Europe isn’t interested in being rule-takers from London.

    2. fajensen

      Part of the difficulty is that Europeans are accustomed to parliaments that function as rubber stamps for their party leaders

      I disagree with that. Europeans are accustomed to negotiating with people who have authority to negotiate. They would have expected that every part of Theresa Mays withdrawal agreement had been properly “cleared” within her government before being put before the EU-side.

      In Denmark, f.ex. it is *never* a single government that creates foreign policies (except for the Iraq war, the festering of that scandal kinda reinforced why getting the opposition entangled is a sound policy).

      They EU-side must have been very surprised and probably quite annoyed that the UK side sends negotiators with no mandate to negotiate and this is revealed only at the very last moment.

      1. George Phillies

        It is unclear to me how EU negotiators would not have noticed that May’s partial agreements were not being shared with Parliament as they went. ‘Shared with cabinet ministers’ (‘government’) is not at all the same as being shared with Parliament. May had a mandate to negotiate. She even had red lines, such as ‘no internal borders’. When the people whose approval mattered — Parliament — discovered she had agreed to overturn Brexit by agreeing to something that gave the EU a veto on UK departure, Parliament was properly shocked and rejected her proposals, which the EU negotiators were not ept enough to recognize as a poison pill. She crossed them, and paid the price.

  13. MichaelSF

    If the UK becomes dependent on a (not very favorable) USA trade deal, what happens if there’s some disruption in trans-Atlantic shipping costs, perhaps a big spike in oil prices due to turmoil in the mideast? Does a bad deal become untenable and product no longer is sold/shipped as planned?

      1. fajensen

        What about ‘welfare’ payments?

        The US could configure the UK as a strategic platform to attack the EU and Russia from. In return for performing those services, some defence procurements, right-wing think-tank establishments, and such would be given to the UK, keeping the UK economy at float and the bile flowing.

  14. Susan the other

    Until a blurb on NPR I didn’t realize that the WTO restricted trade deals that harmed previous trade deals with other countries – like China’s promise to buy 200 bn worth of ag products from the US at the possible expense of cutting back the EU’s ag exports. So this is all very interesting. Just as Wolfgang Streeck was pointing to yesterday – ideology is being driven by the coming together of political systems that share a locality or some trading synergy and the biggest determinant seems to be collective demand. So if the UK is thinking nostalgically about its empire days it will have little or no bearing to enhance their current position – that being a very small country that can offer no other country sufficient trade demand to get a good deal in return.

    1. Susan the other

      The only plans made public/leaked for the UK are Singapore on the Thames; New UK Ag (self sufficient?); a possible deal giving the EU all the fish in the channel in exchange for financial concessions; buttering up the Donald; and lots of drama from the Royals who seem to be exploring a new place to live. But there is such a reaction worldwide to big capital/financialization appropriating the wealth of small impoverished countries that Singapore on the Thames is destined to suffer all sorts of sanctions. UK New Ag will be a difficult project bec. climate change. International corporations are being feverishly solicited by Macron – JPM-Chase has just promised to move its operations to France bec. Brexit. That leaves, for the time being, the only venture that might succeed which is eastern Mediterranean natural gas production – a very dedicated venture by Israel, Cyprus, and the UK. We live in interesting times. Maybe we are reverting to good old “natural advantage” when it comes to trade – the natural advantage of eastern Europe is all those gas pipelines from Russia; all the coal and Steel in northern Europe and all the machine and engineering know how in Germany and last but not least a federation of societies that are not racing to the bottom, so there is some social stability left. Not to mention that eastern Europe is virtually in the heart of the heartland.

  15. clarky90

    I remember 50 years ago in NZ. Appliances and cars lasted a long time, and were easy to repair. Kids ran around the neighborhood after school. Food was wrapped in paper and then old newsprint…

    If modern children are tormented by impending “climate change”? Then..

    Why are we not celebrating an impending drop in economic activity? Why are we not overjoyed by a return to a simpler way of life? Hurrah for Brexit!

    It is obvious that being a proper environmentalist means, happily “doing without”. NOT flying by private Jet…….and pondering the latest electric car on offer……and “bucket lists”….ugh

  16. Synoia

    Javid took an aggressive form of the position that the UK would not be a rule-taker.

    LAMO. The UK has no leverage to be a Rule Maker. As May discovered. It is, at best, a grovelling supplicant. At worst it is a distraction to the EU.

    BoJo has the Priminister’s job. He will do anything to keep it, Including licking boots, as long as the boot licking is behind locked doors.

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