EU Referendum


Brexit: in for the long haul


27/12/2017




As the media noise restarts after Christmas, we see the predictable lack of coherence dosed with the usual trivia and personality politics. We even see the ghastly George Osborne roped in to fill space, contributing volume but nothing that's going to improve our knowledge of Brexit or life in general.

The short break, however, gives us the opportunity to rethink where we're going and better to understand what shape Brexit is likely to take over the short-to-medium future.

The most striking thing we have to deal with is the very thing that hasn't yet sunk in – the fact that the direction we are going, with the "vassal state" transition, ending in December 2020, means that Brexit in any real sense is going to be delayed 21 months.

There may be Brexit celebrations at midnight on 29 March 2019 but we are not going to leave then – even if the politicians and media say we have become an independent state. Any such celebrations, therefore, will be hollow, but that's only where the implications start.

The principal effect of a non-Brexit (or Brexit in name only) is that all the concerns about which we've been writing will not transpire. There will be no interruption of flights, no traffic queues at Dover, no banking crisis, no nothing. From that point of view, Brexit will be a non-event.

However, knowing the media as we do, this non-event will be described as a success, rather in the manner of Bush's "mission accomplished" after the Iraqi war, just as the dirtiest, nastiest insurgency in the history of the USA was about to starts.

And accompanying the non-event, we will most likely see a falling off in interest and reporting, more so that at present. With some relief, the legacy media will go back to domestic politics as thier journalists indulge themselves in their never-ending diet of court gossip, writing the European Union out of the script. The EU and Brexit will be yesterday's news. 

Only then, however, will the serious work of Brexit be starting. Out of the public gaze, before a disinterested media, grey, anonymous civil servants will bed down in Brussels to craft a trade deal, seeking to salvage something from the wreckage of Mrs May's Brexit policy.

While everything so far has been carried out under the glare of publicity, once boredom has set in, Brexit will become the domain of the nerds and the specialists – as the EU was before it, transforming the politics of Brexit. The general media and most politicians will bow out, taking no interest whatsoever in the proceedings.

If we are to accept anything of what we have been told in Brussels, the trade deal that will be forced on us  will only be a pale shadow of what Mrs May expected. This means that much of the hurt that we predicted for April 2019 will not have been avoided. It will simply have been deferred to January 2021.

In the extra 21 months, though, we can expect to see considerable activity to mitigate the effects of Brexit – but not by government, which will still be in denial, expecting "frictionless" trade with EU Member States even though the EU is in no mood to make concessions.

Rather than government, it will be business that makes the adjustments. One thing we will see is operations which rely on import from EU Member States building up stocks to keep them going through the inevitable period of disruption. Others will cut back on EU/EEA-based suppliers and source from the UK or from countries outside the EEA.

Exporters to EEA states, on the other hand, will set up operations within the Single Market area, and either build up stocks of UK produced materials, or relocate production in order to avoid border problems.

On the other hand, businesses already in the EU will be looking to reduce dealings with the UK. They will be looking for other customers within the EU/EEA or be seeking trading partners in other areas of the world, to replace trade currently conducted with UK.

Many of these and other adjustments will be done without fanfare. Some are already in progress. And perversely – bearing in mind that we have a trading deficit with the EU - some of the changes will be beneficial to the UK. The process of stock-building, for instance, will give some manufacturers a short-term boost.

Thus, many of the more serious trading problems that come with leaving the EU's Single Market will have less effect than anticipated – and certainly less than if we actually left in March 2019.

Longer term, the changes are more difficult to predict. But if we look at the reasons why we import goods instead of relying on home-made produced, we may see some clues as to how we may be affected.

One particular reason for importing is availability. We buy goods from abroad because they are not produced here, or not produced in sufficient quantities.

This applies particularly to foodstuffs, but this is much more than a question of not producing enough food to feed our population. There is the seasonality effect, where we buy in products such as tomatoes and new potatoes that are grown in warmer climes and come onto the market earlier. Then there are the many crops that can't be grown in our climate, and simply have to imported.

Other drivers of imports – across the board – are quality and price (or both), where we spurn domestic products simply those from abroad are better and or cheaper (sometimes both).

A logical expectation, therefore, is that without imports from EU territories, the range of goods (and services) available to UK customers and businesses will be reduced. Prices overall may increase and, with goods, we may have to make do with inferior goods produced domestically.

Of course, there will be a considerable amount of import substitution, as we go elsewhere for our products. In some cases, prices may be cheaper as we benefit from tariff reductions. But in some cases, costs will multiply considerably as we dip into under-supplied markets and have to pay a premium for availability as we compete with other buyers.

From the media, where they can even be bothered to report the too-ing and fro-ing, some will parade every gain. Others will lament every loss, but it will be a long time before we get a clear picture of what is going on. My guess is that – in the nature of things – prices will go up and overall economic activity will go down, exacerbating all the problems that we are currently experiencing.

The one thing for certain, though, is that there is going to be no immediate Brexit bonanza, nor even Brexit as we know it, any time soon. We are in for the long haul. Probably, decades will have to pass before the dust settles and we can get a sense of where we are going.

And all this will transform the politics of Brexit – and even perhaps domestic politics. When we do hit Brexit proper, Mrs May's Conservatives will have a year and a bit before they go to the country. In a strongly contested election, Brexit will be enough of a mess to make it difficult for them to win.

Labour, should it win, will be anxious to shove Brexit into the background – as it is already doing, and even a victorious Conservative Party will want to move on. Aided and abetted by the media, we end up with Brexit disappearing into a black hole. And upon its grave will be written the words "died of boredom".