Brexit

A second Brexit vote remains the best option in a dizzyingly difficult situation.

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While most attention focuses on the implications of Brexit, the Labour Party's Marxian hard leftism should cause us equal, if not more, concern.

In choosing to leave the EU, British voters decided that Brexit was the only way to preserve their national sovereignty. But in choosing to leave that club, they are experiencing the trade-offs inherent in modern sovereignty.

Coauthored with James Resnick, former intern in the International Institutions and Global Governance program at the Council on Foreign Relations. There is a common—and understandable—comparison made between the results of the Brexit referendum and the presidential election victory of Donald J. Trump. Beyond anti-establishment sentiments, both surprise results were driven in part by the electorate’s perceived loss of national identity and sovereignty. The corollary is that both countries now appear globally isolated. As one way out of this isolation, both governments have focused on a potential U.S.-UK trade deal. While such an accord is attractive for both sides, the United Kingdom has a greater priority: signing a trade deal with the European Union (EU). Neither deal will be easy to finalize, but Theresa May’s government would be better served by directing its already stretched diplomatic resources toward the EU. Hopefully this will be what May signals when she unveils further details on her Brexit negotiations plans, including a possible transitional period on EU-UK trade, in her speech in Florence this Friday. For the United States, global isolation is a self-inflicted wound, the natural result of an “America First” policy skeptical of multilateral institutions and cooperation. President Trump withdrew the United States from the Trans-Pacific Partnership (TPP) on his first day in office, and he has consistently supported protectionism. Achieving “better” bilateral trade deals, like the one envisioned with the UK, will allow Trump to show not only that he is a superior “dealmaker” but also that “America First” does not equal America last and alone. The UK government is divided over its future trading status, as well as political relationship, toward the European Union. Already, the recent EU-Japan trade deal suggests that the UK risks being left behind and detached from other important global players. At the same time, the May government is intent on proving that it can secure trade deals after Brexit. A renewal of the Anglo-American “special relationship” by way of a bilateral trade agreement would be ideal. Winston Churchill first coined the term “special relationship” in 1946, and successive prime ministers and presidents have largely repeated the mantra to capture the unique Anglo-American friendship. At a practical level, however, tensions have often complicated trilateral relations between the UK, the United States, and the EU. In April 2016, President Barack Obama warned that a post-Brexit UK would find itself at the “back of the queue” in any future trade negotiations. Still, May and Trump wasted no time in reviving the relationship, with the prime minister visiting the Oval Office within a week of the new president’s inauguration. Beyond reaffirming the special relationship, a U.S.-UK trade deal would give both countries a needed economic lift. Liam Fox, the UK Secretary of State for International Trade, estimated in July that removal of existing U.S. and UK trade barriers would increase the value of bilateral commerce by as much as $50 billion (£40 billion) by 2030. The United States is already Britain’s second largest trading partner outside of the EU with bilateral trade worth over $200 billion (£156 billion) a year. The United States is also the single biggest source of inward investment into the UK. Without a post-Brexit bilateral deal, moreover, the United Kingdom and the United States will both suffer, as they revert to the more onerous rules of the World Trade Organization (WTO), which could entail more burdensome customs checks, tariffs, and other nontariff barriers. Any U.S.-UK trade deal, however, faces major challenges. First, the UK can only begin official trade negotiations with non-EU countries after 2019, when the UK formally leaves the EU. Even if it were allowed to do so, the UK presently lacks the expertise to negotiate both deals simultaneously, having ceded expertise in trade negotiations to the European Commission over the past several decades. On average, it takes approximately eighteen months to negotiate a trade deal with the United States, and another three years for full implementation—meaning that any U.S.-UK trade deal wouldn’t be effective until at least 2024. Although, negotiating a deal with the entire EU can take even longer—the EU-Canada deal has taken seven years to negotiate—UK Trade Secretary Fox claims that an EU-UK trade deal should be “one of the easiest in human history,” since they both share the same tariffs and regulations. Second, the U.S.-UK special relationship is currently strained. By strong margins, UK citizens disapprove of President Trump, which could undermine any trade negotiations with his administration. Third, some UK groups worry that any deal would lower British food standards, for instance by permitting chlorinated chicken imports into the UK—a topic which has already ruffled the feathers of many UK citizens. The UK might also need to lift restrictions on the use of genetically modified organisms (GMOs), as well as growth promoting hormones in beef fodder, to match what is currently practiced in the United States. Fourth, some worry that a future trade deal may allow U.S. corporations entry into the National Health Service (NHS) system. Perhaps most important, Prime Minister May is in a precarious position to lead any politically contentious negotiations with the United States. Having weakened her hand in June’s snap election, she presides over a fragile governing coalition. While a deal with the United States would be attractive, it would not begin to compensate for the overwhelming void that would be created if the UK fails to reach a deal with the EU. In 2016, 48 percent of UK goods exports went to the EU, and 53 percent of UK imports came from the EU. The corresponding figures for UK trade with the United States were 16 percent and 8 percent. If no trade deal is reached between the EU and the UK, and the two sides revert to WTO rules, the damage to the UK economy would be catastrophic. The WTO outcome (which is not even guaranteed) would impose tight quotas on UK agricultural exports and a 10 percent tariff on UK car exports to the EU. Changes in tariffs and regulations would also impact automotive supply chains, which could increase the cost of assembling a car in Britain by £2,370. The latest EU-UK negotiations in July and August focused relatively little on trade relations, but the urgency of achieving an EU-UK trade deal will surely grow. Philip Hammond, Chancellor of the Exchequer, rightly argues that the UK should prioritize EU trade during the transitional period until 2019. The UK government’s recent proposal that it will seek to negotiate an interim “close association” with the customs union for up to two years after Brexit should help ease some of the trade adjustments to Brexit. Although, any transition policy will likely run into some opposition from the EU. A bilateral UK-U.S. trade agreement sounds attractive since it would signal that neither country is alone in the world. But bolstering the special relationship should take a backseat to UK efforts to finalize a critical trade deal, or even a transition agreement, with the EU by 2019.

MILAN – In the summer, as life slows down, there is space to reflect on fundamental issues. One of the key puzzles occupying my mind of late is the disconnect between widespread political dysfunction and relatively strong economic and financial-market performance. Today, the world’s major economies are experiencing a steady recovery, despite the occasional setback. To be sure, economic performance is far from reaching its full potential: depending on where one looks, one can find output gaps, excess leverage, fragile balance sheets, under-investment, and unfunded longer-term non-debt liabilities. Still, financial markets show no signs of convulsion, even as monetary stimulus is gradually withdrawn. Yet, at the same time, political conditions seem to be deteriorating. Polarization has intensified, owing partly to growing resistance to globalization and the unbalanced growth patterns that have resulted from it. In the United States, for example, the Pew Research Center reports that people not only disagree vehemently with their compatriots on the other side of the aisle; they also don’t like or respect them. The political gridlock long fueled by America’s right-left divide has now become entrenched within the Republican Party, which controls both houses of Congress and the White House. So far, President Donald Trump’s administration has only exacerbated this internal turmoil, while offering none of the hoped-for economic-policy shifts that might elevate investment and growth and boost quality employment. While it is hard to detect the Trump administration’s priorities at this point, it would be hard to argue that they include a concerted and narrow focus on policies designed to make growth patterns more equitable and sustainable. In the United Kingdom, last summer’s vote to leave the European Union surprised many, and concerns across the EU were heightened when Prime Minister Theresa May took over and committed to securing a “hard” Brexit. Now that British voters have stripped May of her parliamentary majority in June’s snap general election, the outcome of the coming withdrawal negotiations – and the fate of the post-Brexit UK – has become even more uncertain. Leaders in Europe, as well as in a number of emerging economies, have now concluded that both the UK and the US are unpredictable and unreliable allies and trading partners. Asia, with China in the lead, has decided to go its own way. International cooperation on economic and security matters – never easy – seems to be unraveling. In this context, the global economy’s resilience – at least so far – is all the more remarkable (though it is of course impossible to know how the economy would be performing in a more stable political environment). There are several possible (and non-mutually exclusive) explanations for this counterintuitive state of affairs. For starters, institutions built over time now limit the capacity of political leaders and legislators to affect the economy. While these institutions can impede the implementation of positive policies, they also serve to minimize economic and investment risk. Particularly on the international front, politicians cannot easily bring about a dramatic and immediate reversal of the patterns of globalization that have been established in recent decades. Any attempt to do so – undoubtedly fueled by intensifying populist and nationalist pressures – would cause serious economic damage, ultimately depleting the political capital of those who spearheaded it. Another, more worrying possibility is that risks are rising faster than perception of them. If this seems implausible, consider the 2008 global financial crisis, in which lax regulation and informational asymmetries led to a pattern of rapidly rising risk and deepening imbalances that were, for the most part, obscured from view. In the current context, the cumulative effect of rising geopolitical tensions, loss of trust, and disrespect for key institutions could produce either a large shock or just deteriorating conditions for investment. But it is harder to construct concrete scenarios than it is to ignore the potential risks we face. Having said that, there is a more hopeful explanation, to which I subscribe, at the risk of being labeled an irrational optimist. The inequality of opportunity and outcomes that have fueled popular discontent and political polarization are very real, and, after years of neglect, they are finally getting the attention they deserve. More concerted attention to social cohesion will not bring quick results. But, over time, it can help to reduce partisan intensity, refocus citizens’ attention on their common values, and restore their leaders’ capacity to deliberate responsibly and implement policy. As always, there will be disagreements – sometimes sharp disagreements – about how to achieve shared goals. The key is to address them in a context of relative mutual respect. This scenario is far from guaranteed, but it is by no means impossible. After all, Emmanuel Macron’s election as France’s president, May’s setback on hard Brexit, and a near-universal rejection of the Trump administration’s stance on climate change and a rules-based global economic order, both within and outside the US, suggest that the center may be holding. In the meantime, national and international institutional frameworks must continue to guard against destructive actions by political leaders. In the final analysis, confidence in these institutions’ resilience – and in an eventual end to the current political dysfunction – is what markets seem to be banking on. This article originally appeared on project-syndicate.org.

As the United Kingdom recovers from a string of terror attacks, the country’s parliamentary elections could determine the course of its Brexit negotiations, trade and economic policy, internal borders, and foreign relations.