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13 February 2019

Whisper it, but Liam Fox is good at his job. Here’s why that’s bad news for Brexit

The Secretary of State’s difficulties completing trade deals are about the impossibility of an independent trade policy. 

By Stephen Bush

In the real world, Liam Fox is good at his job. But the Secretary of State for International Trade is in the firing line after the Sun’s revelation that, of the 40 trade deals that the United Kingdom will no longer have the benefit of once it leaves the European Union, just six are on course to be “rolled over”. To put it another way, the UK will no longer enjoy the favourable market access negotiated for it as an EU member in 64 of the 70 countries with which it currently has such arrangements in place. (There are more countries than trade deals as most countries negotiate in a bloc of one kind or another.)

Civil servants have used a colour-coding system. Green indicates deals that are either complete or on course for completion by exit day. Amber indicates deals that are on course to be completed but not by exit day. Red indicates arrangements in serious trouble and black indicates that negotiations have no chance of being completed any time soon.

But the surprise isn’t that Fox has negotiated so few trade deals but that he has negotiated so many. One problem for the United Kingdom after Brexit is that it will no longer have the benefits of negotiating as a large and powerful trade bloc that can largely get its way through sheer size. In addition, because the UK’s loss of its preferential access is well-advertised, and none of the 70 countries involved faces a similar cliff-edge loss of trade, the incentive is on the UK’s side to strike deals and do so on unfavourable terms to maintain anything like the current standard of market access. That dynamic has been a major part of the Brexit negotiations and will continue to be the reality of post-Brexit talks with the EU.

So it is surprising that Fox has managed to secure essentially the same terms on any of these deals. But it highlights how the main aim of Brexit for most of the Brexit elite – an “independent trade policy” – is a mirage in more ways than one.

The essence of most trade agreements is that the two negotiating parties agree to remove or reduce barriers to trade with one another, sometimes in direct exchange (an agreement makes it easier to sell British ready meals in Swiss supermarkets and vice versa) or in sectors of relative strength (the British government agrees to make it easier for New Zealand farmers to sell lamb to British supermarkets, in exchange for the New Zealand government making it easier to sell British financial advice in New Zealand).

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The bigger your market, the smaller the concessions you have to make, because making it five per cent more profitable to trade in a market of 500 million people is more lucrative than making it 10 per cent more profitable to trade in a market of 60 million, for obvious reasons.

But depending on the shape of your economy, nations can in theory benefit from going it alone on trade if is in their interest to offer asymmetric trade deals. If, for example, you have a small to non-existent agriculture sector but a lot of hungry mouths, you might be able to trade better market access for your information technology products, so long as you don’t have to worry about keeping your own farmers afloat.

The big gamble of Brexit is that the British economy is sufficiently different from the rest of the European Union that it can strike better trade deals alone than it could as part of the bloc – essentially by offering concessions that didn’t work for the whole of the EU, whether politically or economically, but do work politically and economically for the United Kingdom.

Is the gamble right? Well, that the United Kingdom has been unable to secure even basic continuity with its pre-existing trade partners isn’t a good sign. But that’s something that can’t be fixed by removing Fox – but only by keeping the United Kingdom within the customs territory of the EU.