International Trade

From Across the Pond: The Exit - Brexit Over and Exit Strategy begins

Brexit Over and Exit Strategy begins Early Friday morning (24-June) the U.S. awoke to the results of Britain’s historic vote to leave the European Union. On the western shores of “The Pond” the controversial referendum was often buried in the electric ether of the U.S. Presidential campaign or more exciting issues like keeping up with another generation of Kardashians. However, with the “shocking decision” (an expression used by at least a dozen U.S. news reporters) “The Exit” is today’s news. Special Relationship While most of the U.S. was ambivalent to the lead up to the referendum, on the East Coast, where the expression “I’m transatlantic” often means having closer relations with bag checkers at JFK or Heathrow than family members, the debate between remaining and exiting was a keen topic of discussion. Like the U.K. itself, those with closer links to the City (City of London) tended to support remaining in the EU, while those whose interests were farther afield, leaned towards exiting the Union. In either camp, the sense of a “Special Relationship” as Prime Minister Winston Churchill described (although he was not the first to coin the phrase) the ties between the U.S. and Great Britain… and the rest of the English-speaking world, remains a cornerstone to the future of both nations. Speaking of Churchill quotes, the iconic figure of modern British politics was exploited by both sides during the campaigning up to the Brexit with pithy quotes of varying degrees of accuracy. President Barack Obama, who was firmly on the “remain” side of the question, came out post-Exit to say the U.S. respects the Brexit vote and that the “Special Relationship [between the U.S. and Britain] is enduring,” which is more to say than U.K. Prime Minister David Cameron’s announcement that he will be “exiting” the office of Prime Minister in due course. What that “Special Relationship” means and has meant, is difficult to assess. Ironically, President Obama has been accused (mostly in the U.K. press) of not supporting the “Special Relationship” but in all fairness, that allegation would not hold up in the hands of any solicitor worth his wig. Like the markets, the political repartee of the moment is rarely a fair judge of a long-term trend. The U.K. is unequivocally a major trade partner, generally around seventh overall, and a critical source of direct and indirect foreign trade investment. Further, the U.K. is a “trade ally” in many of the larger international trade issues. This role as chief ally in trade has become very important as the world divides into greater regional trade pacts with competing global interests. It is perhaps in this role as trade ally that The Exit will have the most impact. Obama and other U.S politicians have viewed Britain’s participation in the EU as a sort of backdoor into the labyrinth of byzantine Brussels. For many in business (the U.S. is not alone in this view) the EU’s regulatory structure requires a sort of pathfinder or pilot and the City of London fulfills the role admirably. But without being an insider, can London and indeed the U.K still be an insider? Exit Strategy? For the U.K. the real work, and indeed the reality of going it alone, begins now. PM Cameron has said he’ll stay on for a while, to see the dust settle. How Ryanair (which released a million tickets for sale at £9.99 apiece) works or the Eurostar Chunnell or any number of day-to-day euro-entanglements are untangled and separated is going to take time – two years or more is the guesstimate experts are bandying about. Other than Greenland, this represents the only defection and the rules of the EU exit are complicated. Euro-economists are also united in their belief the British economy will take a hit, the £ will tank and other unpleasantness will prevail falling over the isles like a new dark age. Certainly there are issues. Will Scotland (contrary to U.S. presidential nominee Donald Trump’s teed up assessment) use this as its own version of an Exit Strategy? Lower energy prices not to mention European markets pushed Scotland into the “Remain” camp in the EU referendum - all bets are off if another referendum to leave the United Kingdom is placed on the docket. Ditto for Northern Ireland. There is also the issue of FTA (Free Trade Agreements). Many of the FTAs came within the context of EU collective clout. Renegotiating these FTAs without the EU umbrella may not be as favorable. And Europe. How does the Berlin-Paris-Brussels nexus reply to the first major EU defector? This is not Greece, who may have inadvertently laid the groundwork for the Brexit with their own Euro-rebellion, but rather a global power central to Europe’s world-view. It has been suggested that it is like the U.S. losing Texas. It’s much more - there simply is no North American equivalent. For sometime it has been quipped that ‘Northern Europe cuts the checks and Southern Europe cashes them’. This is a real gut check for Germany and France, who’ve orchestrated the notion of an “even closer union” while challenges from Russia (Putin was hoping Britain would leave the EU) and migration issues remain unanswered with no end in sight. The idea of an illegal immigrant walking through the Chunnell (which happened) and having a pint on the other end didn’t go down well with the referendum voters. Still it’s worth remembering that this was a very narrow victory for exiting the EU and the issues between London and the rest, not to mention Scotland, will have a profound influence on whatever happens next with The Exit. Indeed a new government will be in place in both the U.K and the U.S. soon and the real concerns of The Exit and the Special Relationship will come to the fore.
George Lauriat
George Lauriat

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