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Europe / Brexit

The Disaster of No-Deal Brexit

Every single day, Britain seems to be teetering closer and closer towards a cliff-edge. That cliff-edge is the ‘no-deal scenario’, which will happen if Britain does not secure an agreement to withdraw from the European Union by March 30, 2019. On this date, the UK will cease to be a member of the EU, and EU laws and agreements will cease to apply to the UK. In this case, the UK would trade solely on World Trade Organization (WTO) rules until trade deals could be agreed to with other countries—including the EU.

The UK government has officially indicated that it intends to negotiate a time-limited transition period, where it would remain part of the EU’s single market and allow a period of free trade. However, a deal of this kind seems unlikely. With Theresa May’s oft-repeated mantra that “no deal is better than a bad deal” and government notices being published to tell people and businesses how to prepare for a no-deal scenario, the UK seems to be heading in the opposite direction. In reality, the UK will  crash out of the EU instead of gracefully ending its relationship.

So how will Britain fare when it comes to trade if it does crash out of the EU with no trade deal? This is clearly an exercise in hypothesizing, so these predictions should be taken with a healthy degree of caution. With this in mind, we shall examine the potential impacts of no-deal Brexit.

First and foremost, the UK will lose 37 trade deals—its access to the EU single market as well as 36 preferential trade agreements negotiated through the EU, covering 60 non-EU nations, including the United States. The UK, therefore, must renegotiate trade deals with the EU and these countries, which will be a process laden with difficulty.

A clear example will be negotiating a trade deal with Britain’s largest non-EU trading partner, the United States. President Trump has adopted an “America First” foreign policy, meaning that any UK-US trade deal negotiated during the current administration will most likely benefit the US. For example, the US may bring food that is cheaper to produce, making it cheaper to buy, but this has implications for UK farmers. Many foods produced in the USA—such as chicken—do not meet current EU food safety standards, being treated with processes that are banned, such as chlorination of poultry. Any potential UK-US trade deal may include clauses that lower food standards to US levels, such as those stipulated in the TTIP trade deal between the US and the EU. Even more significant, however, is the potential dismantling of Britain’s beloved National Health Service. Any potential trade deal could allow concessions for American health insurance companies to operate in the UK and could even mean that parts of the NHS could be sold to US healthcare firms.

It is clear that the UK will almost certainly become the disfavored partner in any negotiations surrounding trade deals, as the fact that the UK would have to renegotiate bespoke deals after a no-deal scenario would mean that other countries may demand better deals for themselves than the ones they previously had under the EU. Since the UK will want to avoid using WTO rules as much as possible, other countries will potentially take advantage of this desperation. Britain, therefore, could lose a lot of influence in its international trading relationships.

Britain could still use WTO rules, however. While this provides Britain with a fallback in case negotiations for when trade deals fail, falling back on WTO rules will result in high tariffs for imports and exports. One of Britain’s major industries is car manufacturing, with plants for Jaguar, Land Rover, Toyota, Nissan, as well as others located in the UK, with most of the production being exported. If a no-deal scenario came to pass, there would be a ten percent tariff imposed on cars and car parts between the UK and the EU, raising the price of British exports. This could cause manufacturers to move away from the UK to produce cars elsewhere, with grave consequences for UK jobs.

Bringing in goods to the UK will be a logistical nightmare, as there would have to be customs checks on all vessels, trains, air shipments and road shipments entering the UK, regardless of which country they came from. The port of Dover, one of the key ports on the English Channel between England and France, estimated that there would be queues of almost seventeen miles of trucks due to enhanced customs checks at the border. Products would also have to be checked for compliance with UK standards, as EU standards would not apply, leading to further congestion and difficulties for importers.

The UK is also home to many airlines, such as Norwegian Air Shuttle and easyJet, who rely on the fact that the UK is currently in the EU’s single aviation market for their business model. Under the current arrangement, these airlines can operate flights from any EU airport to any destination worldwide and vice-versa, which is what their entire business models are based on. For instance, easyJet could operate a flight between Paris and Berlin with no regulatory hurdles. After Brexit, these airlines would have to establish a significant presence in EU nations, which may mean moving headquarters to EU nations, or even moving crews and airplanes to EU airports. With many UK airports being major hubs for aviation—London Heathrow, for example, is the second-busiest airport in the world by passenger traffic—it is quite clear that if airlines have to move away from the UK, a great effect will be the erosion of the UK’s prominent airline industry.

Banks will also lose out due to Brexit, compromising London’s position as the prominent global financial center. When the UK leaves the single market, the UK will lose passporting rights which allow UK-based financial services companies to sell their products across the EU. Many UK banks will have to set up operational centers in other EU financial centers, such as Paris or Frankfurt, and many non-EU based banks (think Bank of America or Bank of China) will move many of their European operations to EU nations.

Airlines and banks, however, are trivial compared to the problem of actually finding labor for Britain’s factories, farms, and other economic sectors. Britain has relied on labor from other EU nations to fill vacancies in many sectors. Since 2004, many Eastern European nations (Poland, the Czech Republic, and Hungary, for example) joined the EU, which has allowed a supply of workers for precarious jobs such as seasonal work on farms. If a worst-case, no-deal Brexit happens, these EU nationals would have no legal right to be in the UK, meaning they would have to leave. Only 0.6 percent of laborers on farms are British, however, so the question remains: how will Britain find the workforce needed to harvest crops, or work in other sectors where EU workers constitute the majority of the workforce?

One option would be to simply hire non-EU workers, and this is an option Britain is considering: Britain is in talks with Australia to ease restrictions on visas, for example. However, this process will be fraught with difficulty, as employers may have to go through a laborious process to actually get visas for needed employees. Until “visa deals” could be arranged with non-EU nations, Britain will face a labor shortage, meaning that, for example, crops could be left to rot on fields due to the fact that there will be no workers to harvest them.

No-deal Brexit will be disastrous. With Britain’s reliance on imported goods, either from the EU or through preferential trade deals negotiated with the EU, a no-deal Brexist ensures that Britain will struggle to meet its needs for goods—especially as Britain is a country far from any form of autarky. With major business sectors losing out from Brexit and a serious labor shortage possible, it is clear that the UK will suffer great damage to its trading power after a hard, no-deal Brexit.