Another day, another Brexit delusion dumped. At almost the same time that Philip Hammond was explaining hopefully and plaintiffly why the EU had to give the UK a Brexit trade deal that met all of the UK's requirement to have cake and eat it, topped with selectively picked cherries to boot, EU Council President, Donald Tusk, was setting out why they don't, and they won't.
The Tories have accused Jeremy Corbyn of wanting to take the country back to the 1970's. The irony is that the Tories themselves still live in the world of the 1870's, and, in the case of Jacob Rees Mogg, the 1770's. Whether the Tories actually believe any of the snake oil salesmen's rhetoric they spout, or whether it is just a sales patter for public consumption, the fact remains that it is based upon a delusion that Britain still occupies a place in the world the same as that it occupied more than a century ago. It bears no relation to the reality either of the modern world, or of Britain's place within it.
So, for example, the Tory Brextremists frequently claim that the EU's negotiating strategy is motivated by the “fact” that they need our money. Pure fiction and fantasy. The EU economy is a $14 trillion economy compared to the UK's $2 trillion economy. It is, then, seven times the size of the UK economy. The Brextremists claim is like the delusions of a pauper, who claims that a millionaire needs their money. The Brextremists also argue that the EU must give the UK a good trade deal – from the UK's perspective – because the EU sells more to the UK than vice versa. The latter fact is true, but the conclusion the Brextremists draw from it is again pure fiction and fantasy. Just a moment's thought would lead you to understand that there would be something very wrong if a $14 trillion economy did not sell more to a $2 trillion economy than vice versa. It would be like expecting that the Tesco store in a town bought more from the local newsagent than the newsagent buys from Tesco!
And thinking that out further, also shows why the conclusions the Brextremists draw from that relation are also pure fantasy. Precisely because the EU is a $14 trillion economy, and the UK is only a $2 trillion economy, it means that the EU would have to sell seven times as much to the UK as the UK sells to the EU, before EU exports to the UK constituted the same proportion of its GDP, as UK exports to the EU constitute of UK GDP. In other words, if all of the EU's exports to the UK ended tomorrow, and vice versa, the impact on the UK economy would be seven times as devastating to the UK economy as it would be to the EU! But, in reality, the impact on the UK would be much worse than that. If such a cessation of trade were to occur, not only would many firms currently based in the UK, simply relocate to the EU, to retain the sales to the much larger market, but EU firms would find it much easier to replace lost sales to the UK, by sales within the much larger EU economy than would UK firms be able to find replacement markets within the UK. Moreover, again precisely because the EU is a much, much larger economy than the UK, the EU would be able to use its greater bargaining power to expand its sales to other non-EU countries, on preferential terms, whereas the tiny UK economy will be forced to schlep around the world's tyrants, such as those from Saudi Arabia, or trying not to offend Putin, or Trump, in order to try to scrape a living from the scraps from their tables.
The reality is that the trade would not completely cease. But, the reality is also not what the Brextremists believe it to be either. A few years ago, when the US imposed tariffs on steel imports similar to those Trump is currently proposing, it didn't stop steel imports, and nor did it stop the continued decline of the US steel industry. What it did was to provide inefficient US steel producers with the ability to keep selling steel at higher prices, so as to bolster their profits without the need for them to raise their level of efficiency, so as to compete with other more efficient global steel producers, what it did was to increase the cost of steel to US users of steel, such as the motor industry and so on, whose costs were thereby increased, which then made US car producers etc. also less globally competitive, which cost US car workers their jobs, and which by raising the price of everything in the US which uses steel, also thereby increased the cost of living for US workers, and so reduced their standard of living further.
If trade tariffs are established between the UK and EU, the first impact will be to further increase the cost of all of those things that the UK imports from the EU, on top of the continued rise in those import prices caused by the fall in the Pound against the Euro, again brought on by Brexit. And, the fact is that the UK will continue to need to import all of those things from the EU, because it is not self-sufficient in food and energy, and the extended and complex supply chains that constitute the operation of modern production, means that components for every product move backwards and forwards across the UK/EU border many times before the final product is completed. With say a 10% import tariff on EU goods brought into the UK, every time one of these components comes back across that border, its cost will have been hiked by an additional 10%.
But, the EU as the world's largest economy, does not face the same problem. Many of the things it requires can be produced within its own borders, free of all tariffs or other customs constraints. It will further increase the gap between the more efficient EU economy relative to the UK economy, manifest in the fact that productivity in the UK is 30% lower than in the EU. All of those more efficient EU producers will continue to be able to export their goods to the UK, whilst a decreasingly efficient UK economy will find it harder and harder to be able to export to the EU.
Hammond's main concern in his speech yesterday was to claim that the EU would have to include in its trade deal with the UK, a deal on financial services, which accounts for a large component of the UK economy. Hammond strangely argued that because financial services constitutes a large part of the UK economy, and so, as 2008 showed, the UK taxpayer is on the hook for huge amounts if that industry goes belly up, the UK could not agree to any trade deal that did not include financial services, and yet, which did not enable the UK to choose its own rules and regulations for that industry, rather than being subject to EU rules. Again pure fantasy. Why on Earth would the EU agree to effectively bail-out the UK for having got itself into a position whereby financial services accounts for such an unsustainably large component of its economy, and where conservative UK governments (in which category I include the governments of Blair and Brown) have taken it upon themselves to underwrite that industry with taxpayers money, and thereby to artificially protect the financial interests of the class of money-lending capitalists?
Hammond argued that even if London lost its current position as the world's largest financial centre that would not necessarily benefit financial centres in Paris, Frankfurt, and so on, because a lot of the business might go instead to New York, Hong Kong or Singapore. That may be true, but it doesn't change the fact that in this process London would be decimated, as a financial centre, with the subsequent effect on all of the economy in the capital, and South-East. Moreover, Hammond and the Tories do not seem to have realised that this development of regional financial hubs is occurring anyway, just as the global economy itself is dividing into regional economic blocs. The continued role of New York will undoubtedly be consolidated and expanded, but so too will the development of a financial hub in Asia, probably based around Hong Kong, but potentially moving increasingly to Shanghai. Its likely that similar hubs will develop in Latin America and Africa, matching the development of those areas as regional economic blocs.
But, as the EU develops similarly as an integrated economic bloc, and with already a developed financial centre around Frankfurt, home of the ECB, there is no reason why the EU will facilitate the promotion of a non-EU financial hub in London, rather than ensuring the increasing domination of Frankfurt as a regional financial hub, alongside the development of Paris and other EU centres as sub-hubs. The EU will have every reason to want to see the hastening of the demise of London as a financial hub, so that its own financial centres are able to take its place, operating under its rules. Even if the UK loses some of its business to New York, or Hong Kong, that does not thereby damage the EU's rising financial centres, but only increases their relative weight vis a vis London, and that increases the impetus for the European financial hub to move into the EU and away from London.
Reality imposes itself every day, and exposes the delusions of Brexit that the Brextremists have been peddling. Labour needs to separate itself more clearly from those delusions, and begin to expose the dangerous fantasies that Brextremism has promoted.
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