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  • OTRI.USA
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  • OTVI.USA
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American Shipper

Trade Trends: Brexit bully pulpit

In negotiating the terms of the United Kingdom’s exit from the European Union, the EU may look to send a signal to other member nations that leaving the union is far more trouble than it is worth.

   Much has been made of what the United Kingdom’s decision to leave the European Union means to business and society in the U.K., and for good reason. It’s a monumental decision that history is not likely to treat kindly.
   But Brexit’s broader effect on the European Union is an equally dynamic issue, and it merits continued analysis.
   The questions that linger in that respect tend to fall into three groups: the direct political ramifications Brexit will have on EU member countries, the balance of power within the EU itself, and the trade policy consequences associated with withdrawal negotiations.
   The direct political consequences of Brexit will play out over the coming decades, and it is far too soon to say definitively whether it is the start of a larger movement towards protectionist policy or an exception that proves the rule. Populist candidate Marine Le Pen’s showing in the French presidential election is a noteworthy case study in framing Brexit as a political litmus test. One could argue against Brexit as a galvanizing force because she lost, or in favor of it because she outperformed many expectations.
   Membership to the EU is now unquestionably a defining issue for politicians in a handful of countries, and it arguably has been for some time. The question now becomes, “Is it one that can swing an election?”
   U.S. President Donald Trump rode a wave of protectionism into the White House in 2016. But before that, voters in Poland rewarded the PiS and its soft Euroscepticism with the most seats in the Polish parliament, and Fidesz, the anti-immigrant and neo-conservative party in Hungary, dominates lawmaking there on both the national and local levels. Political polarization has also increased in both Spain and Italy, according to opinion polling, since the global recession that began roughly a decade ago.
   But despite creeping protectionism elsewhere, there are signs that Brexit supporters in the U.K. are having buyer’s remorse. Polls broadly suggest that, if there were a do-over vote, “Remain” would prevail. One survey of 44,000 people found that more than 13 percent of those who voted to leave would change their vote if there were a second referendum.
   That same poll did find a majority of respondents do not want a second referendum, however, and separate polling suggests many Remain supporters still wish to see the government carry out the will of the people. Even so, it’s tough to say that many Britons, even among those who supported leaving, are enthusiastic about the upcoming negotiations with Brussels.
   This suggests that protectionism is not the winning political position it may have seemed just a year ago, and that there is little long-term political risk of protectionist candidates obtaining power in economically volatile member countries, or of pro-EU parties losing power in strong member countries. The upcoming federal elections in Germany in September will be the next litmus test to assess how, or whether, Brexit will have a long-term electoral effect. Equally importantly, the announcement June 6 of a new trade agreement between the EU and Japan, combined with the recently concluded agreement with Canada, suggests that free trade advocates remain in control of the EU’s trade policies. However, the balance of power in the EU itself is evolving. Britain had 12 percent of the share of EU votes, which rather ironically, it had historically used to push Brussels hard in the direction of free trade. Recent analysis from Reuters and the Financial Times noted Brexit will increase the political and economic power of euro countries like Germany and France, which could be bad news for poorer, non-euro countries and aspiring new members previously supported by the U.K.
   The question most broadly applicable to global trade, however, is how Brussels will steer withdrawal negotiations. Brussels is in a negotiating position of extraordinary strength. The Leave campaign never did question the economic benefits of EU membership. Instead, it focused more on immigration-related issues in advocating withdrawal.


Brussels is in a negotiating position of extraordinary strength…the U.K. will not be able to meaningfully influence EU policy from the outside looking in.

   Then there’s the question of whether there is even much for Brussels to want to negotiate in the first place.
   The EU recently outlined three non-negotiable terms for any future relationship with the U.K.: the free movement of persons, goods, services, and capital are indivisible; there can be no sector-by-sector participation in the EU single market; and the EU must have autonomy to set its own rules.
   In other words, the U.K. will not be able to meaningfully influence EU policy from the outside looking in.
   Finally, the EU wants the U.K. to pay up. Reading between the lines, Brussels may be more willing to discuss a long-term trade deal while negotiating withdrawal terms if the U.K. continues to contribute to the EU budget and commits to satisfactory treatment of EU expats that reside in Britain.
   If the negotiations play out per the above, it would send a powerful signal to other nations that leaving the EU is far more trouble than it is worth. It would reinforce the value of the partnership by demonstrating that with withdrawal comes a tremendous economic loss.
   The EU has also publicly stated it would allow the U.K. to simply discontinue its withdrawal, meaning that even after all this, remaining is still on the table.

   Haurie is vice president of business development for ONESOURCE Global Trade at Thomson Reuters. He can be contacted at keith.haurie@thomsonreuters.com.