Will Brexit really mean Brexit? That’s the question fuelling anxiety among the ultra Brexiteers and their fears will only be increased by Chris Giles’ scoop in today’s FT. Theresa May’s advisers are secretly mulling whether the United Kingdom could stay in a customs union after Brexit, one covering goods but giving us the right to strike our own trade deals for services, which covers the bulk of the British economy.
But Liam Fox, who is still in Shanghai on a trade mission, has told Bloomberg TV that if you are still in a customs union, you can’t have an independent trade policy. But then of course you have everything we know about how trade works showing that the economic costs of leaving the customs union will not be clawed back through trade deals elsewhere, and, of course, the promise to prevent a hard border on either the island of Ireland or in the Irish Sea. Who’s right?
Well, the difficulty is everyone is. Yes, it’s possible that something will happen, some technological change, some great conflict or something that up-ends the way trade has worked since year zero which means the gravity model – the one which predicts that leaving the customs union has only downside as far as UK GDP goes – is suddenly upended. But it’s not especially likely.
And as far as the Irish border goes, it’s open and shut: a customs union covering good and a measure of regulatory alignment between the United Kingdom and the EU27 fixes that issue. It’s also true that the advantages of an independent trade policy, such as they are, will largely flow to the UK through services, not least because now that the UK is leaving the EU, the development of a genuine single market in services is likely to stall as the UK was the largest and most influential beneficiary from that market in the EU.
So why not just have a customs union which covers goods? Well, it’s also true that what tends to happen in trade deals is that a country makes it easier to sell something that is not economically or politically essential in order to open up their partner’s markets to something that is. In the UK’s case, that basically means making it easier to sell goods from the outside world in the UK in exchange for an easier path for services. So there are costs as well as benefits to staying in a customs union.
What you’d expect to unblock all this is for the government to take a some kind of view about the following: a) what it wants the country to look like 10, 15 years after Brexit and b) how it intends to fight and win the 2022 election. It would then balance the difficulty of getting to a) against the importance of achieving b) and reach some kind of conclusion about not just the customs union and Brexit in general.
But the problem is that Theresa May has no answer to a) or b) and the Brexiteer ultras, who essentially control the government, have no plan for Brexit other than for it to happen. It’s not good enough to declare that “Brexit means Brexit” or “Brexit will be a success” anymore than you can declare that “dinner will be a success”. The success of dinner is only achieved by having some idea about what you will cook for dinner, the ingredients you can afford, a recipe you can follow and so forth. And the same is true for Brexit: it can’t succeed simply through force of will.
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