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15 November 2022

The Brexiteers’ trade delusions have been exposed

We knew deals with Australia and New Zealand were of little economic value – they were a PR exercise for Liz Truss.

By David Gauke

Trade deals! That was the exciting opportunity that was supposed to be created by Brexit. Freed from having to pander to the protectionist interests of southern Europeans, the UK would be free to strike valuable trade agreements with fast-growing countries across the world. Brexit would make us richer and more global.

This was a relatively late entry to the list of arguments for leaving the European Union. The longstanding economic argument was that EU regulations on the environment and employment protection were holding us back, but these were not arguments that anyone wanted to make during the referendum campaign, especially as the target voters were not dogmatic free marketeers. Nor was this freedom to make trade deals the most prominent argument – immigration and “£350m per week for the NHS” were much more important – but it was certainly one that Brexiteer Tory MPs took seriously.

Even Theresa May felt that a proper Brexit required the ability to enter into trade deals with third countries and immediately established a Department for International Trade. In doing so, the chances of remaining within the EU customs union were all but doomed.

Slowly – too slowly – the difficulties that flowed from leaving the customs union, including the additional frictions in trading with the EU, became clear. The biggest problem was Northern Ireland. An independent trade policy for the UK meant a border between Britain and Ireland, in the EU, had to be placed somewhere.

This was the issue that stood in the way of May getting a Brexit deal. She found a solution but it essentially meant that we would be unable to complete free trade deals with third countries until a solution to the Northern Ireland border had been found.

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Looked at from an economically rational perspective, even at the time it was obvious that this was not a great sacrifice. The evidence in front of ministers was that the upside of these deals was small. The cross-Whitehall analysis showed that a trade deal with the US would be worth an additional 0.1 to 0.3 per cent of GDP. If we did deals with another 22 countries (including China, India, Australia and New Zealand) this would be worth around 0.1 to 0.4 per cent of GDP. Put in the context of a loss of 4 per cent of GDP from Brexit (and even more if we had left without any kind of deal), these were not huge prizes.

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[See also: Rishi Sunak must abandon the lie that Brexit has been good for the UK]

But no, we must have trade deals straight away, said the Tory “Spartans”. May’s compromise was voted down, the prime minister fell, Boris Johnson flirted with no deal and then agreed to a border in the Irish Sea – but the UK would have the ability to enter into free trade deals.

How exactly is that going? We have given up on a deal with the US. A deal with China is out of the question (Conservative MPs would strongly oppose it). Negotiations with India have run into trouble because the key issue (as it was always destined to be) is immigration. But we do have deals with Australia and New Zealand.

Yesterday we learned what the environment secretary at the time these deals were completed – the staunch Brexiteer George Eustice – honestly thought about them. “The Australia deal is not actually a very good trade deal for the UK,” he told the House of Commons.

He went on to say that “we did not actually need to give Australia nor New Zealand full liberalisation of beef and sheep. It was not in our economic interests to do so. And neither Australia nor New Zealand had anything to offer in return for such a grand concession.” He added that the reason for these concessions was that the trade secretary at the time, Liz Truss, “took a decision to set an arbitrary target to conclude it by the G7. From that moment we were on the back foot.” The best clause in the Australia deal, according to Eustice, is the final one which gives the UK government “an unbridled right to terminate and renegotiate the [deal] at any time with just six months’ notice”.

It is an extraordinary criticism of government policy. A deal was rushed for PR reasons and brought little or no economic benefit (and certainly some cost to the farming sector). Truss (and Johnson, who sided with her), argued in the context of the EU that we could live without a deal even if the economic consequences were calamitous. In the context of almost meaningless trade deals with Australia and New Zealand they rolled over.

In truth, none of this comes as much of a surprise to anyone who has been following this closely. We knew that the Australia and New Zealand deals were of little economic value and that their purpose was to further Truss’s ambitions and give the government something misleadingly positive to say about Brexit.

There are two lessons to be learned, however. The first is that these trade deals need proper scrutiny with credible assessments of their economic value. The second is even more important. At some point we are going to have to re-examine our relationship with the EU. In doing so we need to be realistic about the benefits of having an independent trade policy and the costs – in terms of friction in EU trade and problems over Northern Ireland – that this involves. We should try to determine our relationship with the EU on the basis of these realities, not the discredited fantasies of Brexiteers.

[See also: Brexit has made us poorer but we’re trapped by a conspiracy of silence]

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