How will Brexit affect America?

Briefly commented
Brexit: bargain time for the USA?

Under its new Prime Minister Boris Johnson, Great Britain is heading more and more towards a hard Brexit. It is still difficult to see exactly what the real motives behind this development are. Is it the political ambition of a small group of nationalist-minded politicians, the glorification of the British island situation and a great past, is it increasing inequality as a result of globalization or is it immigration from the rest of Europe? At least one thing cannot be: the desire for a successful economic future. Because that is not to be expected for the British in the foreseeable future, even if Donald Trump whispers in their ears that thanks to active American support, golden times are ahead. This is nothing more than "cheap talk", empty talk with which Trump conceals his real interests.

So-called “small” countries have certain advantages in economic theory. They can systematically undercut the tax rates of their larger neighbors and thus attract consumers and companies, who then bring more tax revenue into the country than is lost by the - also lower taxed - domestic consumers and companies. A devaluation of the domestic currency to strengthen one's own competitiveness can usually be undertaken without the neighbors being too bothered by it. Some statements by the Brexiteers sound suspiciously that one seriously believes in being able to make oneself comfortable as a tax haven with an oversized financial industry between the big economic blocs of this world. This model is originally known from more distant and nearer shores such as Bermuda, the Cayman Islands, Gibraltar, Montserrat, the Turks Islands, the Caicos Islands, Jersey, Guernsey, the Isle of Man, etc. - all of them, by the way, small and very small members of the British Commonwealth.

These considerations for a golden British future can be spun further with a little imagination, which many Brexiteers have probably already done in detail: thanks to their own oil wells in Scotland, they believe they are protected to a certain extent against exchange rate fluctuations, with economic injections - for the benefit of the glorious royal, for example Navy (combined with plenty of good national feeling) - the economy would be booming again and without the “Polish plumbers”, the notorious Polish plumbers, the British craft would flourish again as in the best of times.

However, there are several catches to this line of argument. In reality, Great Britain is not an unobserved little country that can influence its exchange rate at will. Nor will it be able to drastically reduce its tax rates without significantly losing tax revenues from domestic consumers and companies. After all, the Commonwealth's own tax havens will continue to be smaller and therefore even more aggressive in tax competition.

But what will work even worse is the fact that the world's big economic blocs will actually treat Britain as a small country when it comes to new tariff and trade deals. These are urgently needed because the country was included in the European trade agreements with the rest of the world, which will become obsolete after Brexit. Great Britain has currently only been able to conclude a very manageable number of trade agreements for the period after Brexit: with the countries of East and South Africa, Central America, the Caribbean and the Andes, with the Pacific Islands, Norway, Iceland, Liechtenstein, Switzerland and Israel , Palestine, Chile and the Faroe Islands.

The "big ones", however, let the British fidget. It is documented that Japan expects significantly better conditions in a new trade agreement with Great Britain than could be negotiated with the European Union as a whole (including the British). It plays into the hands of the Japanese that they are not in a particularly hurry.

Former US Treasury Secretary Larry Summers sums it up in his well-known direct way: “Britain has no leverage, Britain is desperate… it needs an agreement very soon. When you have a desperate partner, that's when you strike the hardest bargain. ”Donald Trump may be mistaken for a shrewd negotiator or just a cheap sleight of hand, but when it comes to Brexit, he pursues a comprehensible strategy that is both good and bad for America the British as well as the European is. On the one hand, he seduces the British into Brexit by promising them special advantages for the time after that. In this way he is contributing to the weakening of the European Union, which he hopes will put him in a stronger position when it comes to new punitive tariffs or trade agreements. Advantageous "deals" are more difficult to achieve against an EU with the British.

On the other hand, the friendly invitation to a beneficial trade agreement that, according to President Trump, will increase the volume of trade between the United States and Great Britain "three to four, five times", will turn into a British nightmare after Brexit, because the negotiating positions are shifting in favor of the future the American. One cannot believe that Trump will miss this opportunity: it is - in Summer's words - "bargain time". Or in the economic terminology, which, for once, is very figurative at this point: it is “hold up” or (robbery) time of robbery. Poor Great Britain hoping for special British-American relations in the days of Trump!

CategoriesBrexit, EuropeanTagsBoris Johnson, Brexit, Free Trade Agreement, Great Britain, Warrior, Lawrence Summers