Britain’s trade relationship with the EU is needlessly dysfunctional

It would be easy to react to the string of Brexit supporters belatedly admitting that leaving the EU’s single market and customs union was bad for the British economy by saying “told you so”. So here goes: told you so.

Inexorably, year by year, evidence accumulates of the damage done. Not just did the fall in the exchange rate after the referendum inflict a painful shock, but overall trade has lagged behind that of similar economies, and business investment has been strikingly weak.

Is there a way to undo this damage in the short to medium term? Unfortunately, the political toxicity of the UK’s relationship with the EU, and the Labour opposition’s tactic of being at least half as mule-headed as the government at all times, means any dismantling of barriers with the single market will be slow and piecemeal. A Horizon Europe research programme here, a labour mobility agreement there, a veterinary deal somewhere down the line. And all subject to the EU’s unhelpful aversion to smudging the hard line between the easy market access afforded to member states inside its legal order and the tough border bureaucracy for those without.

The maddening thing is it’s not as if the UK has given in to mindlessly constructing trade barriers across the board. So far, the rest of Britain’s trade policy (the prince-free parts of Hamlet, you might say) is pretty sensible and for the most part fairly well executed.

The UK’s ability to run two trade policies animated by different philosophies under one government is startling. At a World Trade Organization summit last week, British ministers and officials paraded their progressive free-trade internationalist credentials. Anne-Marie Trevelyan, the UK trade secretary, told the FT that other (unnamed) governments at the meeting had told her “how important UK leadership is in support of the values of free and fair trade in the rules-based order”.

At one point, the UK made a big show of its independence of mind by being the last government to hold out against a proposal to override a WTO agreement on intellectual property rights regarding Covid vaccines. In this way it struck the somewhat paradoxical pose of being a lone fighter for multilateralist principles.

Outside the WTO, the UK’s preferred gang in world trade is the Asia-Pacific, where its attitudes and conduct are pretty sound. On top of its bilateral deals with Australia and New Zealand, a digital agreement with Singapore has just gone into force and the UK is closing in on an agreement with India.

In some areas, such as its willingness to embrace agricultural liberalisation and address digital issues such as data flow in trade deals, its activities mark a constructive change from EU trade policy. In others, including its eagerness to accept a weak trade deal from India rather than emulate the EU’s determination to hold out for something more substantive from New Delhi, it’s a sign of geostrategic expedience driving commercial policy.

But, either way, the UK in its non-EU dealings is proving, broadly speaking, a competent negotiator and constructive participant in line with the country’s internationalist free-trade tradition. By contrast, its dealings with Brussels since Brexit have been reactionary and damaging. The commitment to the international rule of law on which it prides itself in the WTO is entirely absent in its threats against the Northern Ireland protocol. Its neurotic aversion to co-operation is childish and self-destructive.

A common Brexiter argument was that opportunities elsewhere would offset and ultimately outweigh the shock to trade with the EU. It’s theoretically possible that this could still happen, or that the government’s hunt for domestic deregulatory Brexit dividends will at some point bag some substantive game. But so far, the net effect of the UK leaving the customs union and single market is very clearly negative.

The Asia-Pacific remains far away, however hard you squint. The UK’s dysfunctional relationship with its largest and closest trading partner greatly outweighs anything constructive it is doing elsewhere, including at a multilateral level. Again: told you so.

The broad weakness in UK business investment, including by domestic companies, and of trade with non-EU economies, is particularly striking. It suggests that it isn’t just border frictions with the continent that have hurt the economy, but a general uncertainty among companies and a sense that economic policy is in the hands of a government that doesn’t know or care what it’s doing.

A digital partnership with Singapore — which in any case needn’t be incompatible with EU single market membership — is fine. But it’s not a substitute for an open and constructive relationship with the trading area the UK so recklessly left.


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