Is Taiwan the Next Hong Kong?
China Tests the Limits of Impunity
Despite intermittent runs on the pound sterling and a plunge in business confidence, British Prime Minister Theresa May has doubled down on her government’s commitment to go through with a so-called hard Brexit, a full-scale departure from European Union membership. The United Kingdom would be wise, however, to reconsider leaving the EU on the basis of a non-binding vote, for one of the principal costs would be the loss of the country’s outsize global role, mirroring the United States’ own nationalist tilt with the election of President Donald Trump.
By all accounts, Trump and May hit it off in their first meeting in January. Yet before May had even touched down in Ankara the next day, for a summit with Turkish President Recep Tayyip Erdogan, Trump had issued his seven-country Muslim ban, prompting numerous segments of British society and Parliament to pressure the prime minister to respond in some way. Over two million signed a petition asking her to rescind her invitation to Trump to visit Queen Elizabeth II.
Assuming the United Kingdom is on track for a hard Brexit, it is in something of a precarious position. At present, the historically significant special relationship with the United States has become highly mismatched, with the May government taking on the role of supplicant to a new U.S. administration that is brimming with swagger and self-confidence—and believing that the world is tilting in its nativist direction. In fact, Trump’s nationalism may hasten the decline in May’s domestic support.
Even if their successful meeting were to translate into anything lasting, the special relationship no longer resembles the reliably close bilateral relationship at the heart of the greater Western alliance that it once was. May still needs Trump for support on Brexit and a trade deal, and Trump still needs the support of the United States’ oldest and most trustworthy ally for his own fledgling legitimacy. Yet each leader is now reinforcing policies of the other that are not actually in the interests of either the United States or the United Kingdom and their respective populations, and may in fact harm them.
The special relationship has been critically important in building and upholding the liberal international order. But the cracks and fissures in this 70-year-old alliance system are growing by the day. In fact, it is beginning to appear that by the time they meet again, it will almost be as if two accidental leaders are shaking hands on a deal to make both countries weaker. All of this will introduce an unprecedented degree of irony to their storied relationship, but also a fair amount of tragedy when viewed through the lens of geostrategy.
Consider that, for no other reason than the populist worldview of Trump and his advisers, the United States is rapidly withdrawing from numerous commitments to the international order. Inviting the interference of Russia in the U.S. election, torpedoing the Trans-Pacific Partnership and ipso facto empowering China, undermining the One China policy by taking a call from the president of Taiwan, ceding power to Russia in the Syria talks, playing handmaiden to a historic rift among our Persian Gulf allies, and rhetorically undermining NATO and the EU have all weakened U.S. power and stature abroad. By pulling out the rug from under Mexico, unnecessarily raising tensions with Iran that threaten the nuclear agreement, granting North Korean leader Kim Jong Un equal stature in the crisis with Pyongyang by meeting Kim in person and perhaps not demanding denuclearization (not to mention unwisely ratcheting up tensions), and by personally insulting close allies such as German Chancellor Angela Merkel and Australian Prime Minister Malcolm Turnbull, further damage has been done to Washington’s image and influence across the world. There is every indication that the trend will continue.
THE ECONOMIC COST
For its part, Brexit is about to cost the United Kingdom the outsized role it plays in the liberal order. It is already feeling the economic cost of the Leave vote via the weakening of the British pound, instability in the stock market, and a serial depression of business confidence. Were the country to go through with Brexit in full, multinational companies would leave, foreign direct investment would dwindle, and many of the denizens of the country’s knowledge economy and outsized services sector would relocate. Lower GDP growth, higher unemployment, and reduced living standards would follow.
In fact, the British Treasury has estimated that the United Kingdom’s GDP reduction within two years of leaving the EU will be doubled, when compared to staying in the EU’s single market. The IMF has downgraded the country’s growth by three percent (to 1.7 percent) largely because of depressed consumer spending, and down further to 1.5 percent in 2018. The U.K. Office of Budget Responsibility has also downgraded the country’s growth by five percent by 2018. The Treasury itself predicts that GDP will be over six percent lower by 2030 than it would be if the country were not leaving the EU, costing each British household approximately $6,000 per year.
The cost of introducing new British tariffs and a series of non-tariff barriers will also be harmful. Moreover, government debt is set to rise to 1.9 trillion pounds (approximately $2.5 billion) by 2021, necessitating 160 billion pounds ($207 million) of extra borrowing that will translate directly into either spending cuts or higher taxes. Private sector hiring confidence in the country has decreased to its lowest level in three years, and is slated to crater even more. Unemployment benefit claims are predicted to grow by 100,000 by 2020. More significant still, losing comprehensive access to the European single market for the United Kingdom’s renowned service sector businesses—banking, insurance, consulting—will dramatically drive up the costs of departure.
Bank industry experts predict that Brexit will result in cost increases of four percent for banks, with capital requirements rising by 30 percent. HSBC’s own analysis stipulates a Brexit cost of $200–300 million, with fully $1 billion in global revenue put at risk. Because of this, the bank intends to move 1,000 to 6,000 investment jobs from London to Paris. The respected consultancy of Oliver Wyman predicts that the United Kingdom will shed 31,000–35,000 financial service jobs overall, with 12,000–17,000 in the banking sector. In fact, a worst-case hard Brexit could lead to the departure of fully 40,000 banking sector jobs.
Even in the years preceding the Brexit vote, much of the country was already suffering from economic hardship as a result of Conservative government policy. Former Prime Minister David Cameron, for example, had subjected the United Kingdom to seven straight years of austerity budgets between 2008 and 2014, which stifled the economy and had a disproportionate effect on the less well-off, with double-digit percentage losses in purchasing power for UK wage earners. In response, to the surprise of many, May has successfully converged on the political space of the Labour Party with policies less akin to those former Prime Ministers Margaret Thatcher and David Cameron than Tony Blair and Gordon Brown—with Edward Heath being her only modern Tory leader bedfellow. But May appears to have made a Faustian bargain in the attempt to carve out her own legacy. When the full extent of Brexit’s repercussions begin to hit home, the damage to modern-day Britain may not be breathtaking, but by a spate of measures it is likely to be severe.
Leave campaigners claimed that the United Kingdom on its own would be able to negotiate a favorable trade deal directly with the United States, as well as maintain strong trade ties to Europe. But the current political climate in the United States is one hostile to free trade, with workers buffeted by the downsides of globalization and temporarily more nationalistic and less tolerant than normal. As for the EU, it will be forced to play hardball with the United Kingdom in order to signal to other EU members that the cost of leaving is prohibitive.
The irony here is that the major economic costs of Brexit will do marked harm not only to the British economy, but to May’s legacy in Britain as well. Because of the adverse effects of withdrawal from the EU, the very economic growth and resulting tax revenue that May needs to put her middle-of-the-road economic policies in place are not likely to come to pass. Significant national economic resources are necessary in order to fund an amalgam of domestic legislation aimed at easing the difficulties of “ordinary working people,” in her words. It would thus appear that May and her party are far too readily equating Brexit with the national interest—failing to see the national interest woods for the Brexit trees, as it were.
A LOSS OF WESTERN LEADERSHIP
The standout long-term loss due to Brexit will be the United Kingdom’s diminished influence as a world leader, along with its status as a worthy partner in the so-called special relationship. The United Kingdom has long punched above its weight in global terms, principally by maintaining the position of a capable world player long after losing the British empire, with midrange military prowess, tip-top intelligence resources, outsized financial sector leadership, and a highly skilled diplomatic corps. Ironically, it has also been an important EU leader and a part of its core triumvirate alongside France and Germany. Now there is a risk that Scotland might leave the United Kingdom and rejoin the EU on its own, with Northern Ireland also pausing for strategic thought as even the 1998 Good Friday peace agreement, which brought an end to decades of sectarian conflict, will likely be undermined.
That reality is that by leaving the EU, the United Kingdom will be less useful to Washington as an ally. Should it leave the single market, its weakened economy will force London to significantly reduce its military and intelligence spending. It might wish to compensate for Brexit by doubling what it contributes to NATO, but it will be unable to do so. The U.K. Ministry of Defence is slated to lose $800 million in purchasing power from a full-fledged Brexit, according to the MOD itself.
If the two countries were to proceed to administer these self-inflicted wounds in full, the West, collectively, will become less powerful, less stable, and less reliable—with the demise of the big U.S.–EU trade deal being merely the first casualty. A diminished Western hemisphere will negatively impact relations between Asians, Middle Easterners, and Africans on the one hand, and the United States, the United Kingdom, and the West on the other. More than likely, this act of self-immolation will further embolden Russia and China, not to mention North Korea and Iran.
Inside the Washington Beltway, U.S. leaders tend to view the United Kingdom as a useful counterweight to Germany, being aware of how many German firms do business in Russia and the degree to which the continent remains dependent on Russian gas. Washington also needs its most reliable ally to help it deal with an increasingly aggressive China—in particular the annexation of islands from the Philippines and Vietnam, but also the suppression of democracy in Hong Kong. The United Kingdom, for example, has been a key part of NATO’s engagement of China and Western allies in Asia.
The United Kingdom has also been playing a leading role in taking on the remnants of al Qaeda and fighting the Islamic State (or ISIS) in Iraq and Syria, not to mention the efforts of its troops and civilian experts in Afghanistan. The number of British troops and funding for NGOs and aid programs in Afghanistan will almost certainly diminish with Brexit. What is more, France in recent years has begun to look more reliable to U.S. leaders for its continued global leadership—from its Mali military operation to its Middle East peace efforts to President Emmanuel Macron’s newfound diplomacy in Libya and east central Europe.
With conventional deterrence in Europe eviscerated by Russia’s 2014 annexation of Crimea and the chemical weapons-wielding regime of President Bashar al-Assad looking increasingly secure in Syria, the rightward nativist shift of national politics across the West has been distracting attention from the beginning of a strategically unwise and self-imposed diminishing of the West’s power and influence on the world stage. Thankfully, the French have avoided going down the same road as the United Kingdom and the United States. France and its EU partner Germany are now the best bets for upholding the liberal international order.
WHAT THE FUTURE HOLDS
It is both ironic and tragic that the United Kingdom, now in an undeniably supplicant state, is endorsing the Trump administration’s diminution of the United States’ international role, which in turn will eventually harm core British national security interests. By the same token, Washington is harming its ally by cheering on a hard Brexit and the weakening of the EU. Even if this dynamic helps facilitate the trade deal that May desperately desires, such a deal will not in any way be accurately described as a triumph. Instead, it will symbolize the marked political decline of both countries and their historic special relationship.
Now that the United Kingdom is retreating politically across the Channel, the admiration Americans hold for the country could also falter. The United Kingdom is rapidly becoming less recognizable, and a whole lot more bewildering. At such a time, it is difficult to recollect that it was Winston Churchill who first called for a “United States of Europe.” Were the United Kingdom ever to wonder how much influence it has wielded on the world stage, it soon will know: a great deal indeed.