America’s China Policy Is Not Working
The Dangers of a Broad Decoupling
It feels strange to have arrived at only the first anniversary of something that has dominated life in the United Kingdom for half a decade. For the British who wanted to leave the European Union, the date to commemorate will always be June 23: the day when British voters chose to exit via a referendum. That was the moment the United Kingdom unofficially triggered divorce proceedings with the EU, kicking off what’s come to be known as Brexit. And yet it was only at one hour before midnight on New Year’s Eve in 2020 that Brexit was finally—or so British Prime Minister Boris Johnson claimed—“done,” as a yearlong transition period ended and the United Kingdom fully exited the EU’s single market and customs union. After 45 years as part of the European project, the British were going it alone.
A year in, there is growing evidence that Brexit has taken a toll on the British economy, but despite Johnson’s claim, many of its details still need to be determined, and its true costs and benefits remain unknown. The British government has not fully implemented the EU-UK Trade and Cooperation Agreement—the rules and terms by which the two sides agreed to talk and trade. That’s partly because COVID-19 has eclipsed the decision to leave the EU in terms of both political salience and economic impact. By delaying full implementation of the deal, the United Kingdom has delayed the consequences of the new trading arrangements.
But some economic damage has already become clear. According to a study conducted by John Springford, an economics researcher at the Centre for European Reform, British goods trade in September 2021 was 11.2 percent, or 8.5 billion pounds, lower than it would have been had the United Kingdom stayed in the EU’s single market and customs union. And the post-Brexit period is also beginning to have political consequences. There are signs that the pro-Leave coalition that swept Johnson to power in December 2019 just might be less stable than many initially assumed.
This year began with a sense of optimism: 2021, many hoped, would be the start of a new era in British-EU relations. The Trade and Cooperation Agreement reached in December 2020 avoided the worst-case scenario. The United Kingdom would not be faced with the significant political, economic, and diplomatic disruption that would have been generated by a “no deal” outcome. Some thought that with the future terms of engagement on trade mostly hammered out, the United Kingdom and the EU could use those foundations to rebuild on friendly terms.
The deal, however, was relatively thin on substance. The United Kingdom’s Office for Budget Responsibility concluded that in only a few respects did the new trade arrangement go beyond the terms of any normal free-trade agreement (insofar as such a thing exists), as the British government staunchly refused to countenance alignment with EU rules, meaning trade between the United Kingdom and the EU would be significantly reduced. The rather abrupt shift—from trading arrangements within the EU’s single market and customs union to the far looser arrangements implied by the new Trade and Cooperation Agreement—necessitated a significant adjustment on the part of traders between the two markets. Moreover, the last-minute nature of the deal meant that the British government issued some guidance for traders only the day before the new arrangements were due to come into effect, which caused some confusion as companies had to quickly come to grips with the realities of the new terms of trade.
Indeed, the United Kingdom has still not put in place the full gamut of checks on goods entering the country from the EU that the agreement requires. The British government is now warning traders about new checks to be phased in during the coming months, with any outstanding ones finally introduced in July 2022. In this sense, as in many others, Brexit is still far from done.
Plus, there are still vast areas of policy that have yet to be addressed. The Trade and Cooperation Agreement did not include any mechanisms for formal coordination between the United Kingdom and the EU on foreign and security policy, and the British government has subsequently seemed reluctant to collaborate with the EU even absent formal mechanisms. This is hardly sustainable, given the challenges both sides face from an increasingly unstable international system.
Perhaps the most important unresolved issue from the Brexit saga remains the question of Northern Ireland—or what has been called the “problem child” throughout these messy divorce proceedings. The United Kingdom and the EU both have a solemn commitment to uphold the Good Friday Agreement, which has secured peace in Ireland since 1998. Given the need—agreed by both sides—to avoid a “hard” border, where physical checkpoints would control the movement of goods and people between Northern Ireland and Ireland, the United Kingdom and the EU had two options.
First, the United Kingdom as a whole could have remained within parts of the EU’s single market and customs union, thus obviating the need for checks on the Irish border. Alternatively, checks on goods entering the European single market would have to be carried out on the east–west border within the United Kingdom and between the Great Britain–Northern Ireland border.
During the Brexit talks, the United Kingdom and the EU agreed on the latter option in what’s come to be called the Northern Ireland Protocol, an appendix to the larger withdrawal agreement. Soon after Johnson signed the protocol, however, he was filmed reassuring worried exporters in Northern Ireland that no extra paperwork would be needed to ship goods to the rest of the United Kingdom—a misleading statement at best. And in recent months, the British government has ramped up the pressure on the EU, arguing not only that Brussels was being too draconian about the checks but also that the European Court of Justice should no longer have ultimate authority over the enforcement of the protocol in Northern Ireland.
And so, a year after the signing of the Trade and Cooperation Agreement, and two years after the Northern Ireland Protocol was negotiated, the two sides remain locked in a dispute as to how to make Brexit function in Northern Ireland without disrupting trade or the brokered peace. It remains far from clear whether the two sides will be able to arrive at a satisfactory compromise. In the event they do not, it remains possible that the United Kingdom will use Article 16, an emergency clause of the protocol that allows either side to suspend parts of the deal if they believe the arrangements aren’t working. This would likely lead to the threat of retaliation and counterretaliation, which could involve the imposition of tariffs, undermining even the relatively limited terms of the current trade arrangements.
Despite claims that Brexit is completed, its political and economic effects are still being determined because the rules of the road are still being tested. What is more, given the economic damage wrought by COVID-19, the economic impact of leaving the European single market and customs union has effectively been cloaked by the larger (for now) impact of the pandemic. Across nearly all sectors of the British economy, the public feels the pandemic has caused more pain than Brexit.
It is fair to say that some advocates of Brexit have been able to spot the upside to this. On Today, BBC Radio’s flagship news program, former Conservative Chancellor of the Exchequer Norman Lamont, an ardent Brexit supporter, used the impossibility of distinguishing between the impact of COVID-19 and that of Brexit as a means of sidestepping the question as to whether Brexit has had a negative effect on the British economy.
It is certainly the case that Brexit and COVID-19 effects are operating in tandem, causing backlogs and shortages across multiple industries. One recent study showed it was clear that COVID-19 and Brexit each accounted for some of the disruption. For example, there are good reasons to think that the petrol shortages experienced in September and October were a partial result of Brexit. Yet the lack of truck drivers, which had effects on the availability of some goods in shops, although exacerbated by Brexit, also stemmed from the pandemic.
Despite the confusing pandemic backdrop, there are good reasons, as mentioned above, to believe that Brexit is already beginning to bite. Moreover, the British government’s Office for Budget Responsibility has estimated the aggregate medium-term impact on British GDP to be a reduction of four percent, with around two-fifths of this impact having already taken place. Other estimates, such as those the UK in a Changing Europe has conducted with the London School of Economics’ Centre for Economic Performance, put the impact at somewhere between 5.8 and 7.0 percent.
Perhaps the most important unresolved issue from the Brexit saga remains the question of Northern Ireland.
These costs will not be shared evenly. Early evidence suggests that Brexit’s most marked impacts have been felt in regions where most voters supported leaving the EU in 2016 and where there is the most manufacturing and the highest number of low-skilled employees. Brexit, therefore, not only will have an impact on post-COVID-19 economic recovery, and on national economic performance thereafter, but may well also hinder the British government’s attempts to “level up the country,” as Johnson puts it, by reducing wealth inequalities between its richer and poorer regions.
Of course, it is difficult to know whether voters will notice hypothetical lost GDP growth they never experienced, or whether they are more likely to notice tax increases. The economist Ian Mulheirn has made the point that recent rises in taxes—including 29 billion pounds of extra taxes that are expected to be introduced by the government by 2025—would not have been necessary had the United Kingdom remained in the EU. Brexit is forecast to have a net cost to the public finances at around 30 billion pounds a year.
However, there is simply no political party with any interest in relitigating Brexit on these terms. That’s because there is little sign of the British people changing their minds about leaving the EU, despite a consensus among mainstream economists that Brexit’s impact will be strongly negative (even if they disagree about the scale of that impact).
In both the general election of 2019 and the local elections of 2021, Johnson first assembled and then maintained what was a coalition of Leave supporters to seize and then consolidate his power. He was backed by 75 percent of Leave voters in December 2019. He has privately spoken of the idea that “Keep Brexit Done” could form part of his bid for reelection. A “divide and rule” logic is clearly at play. Brexit plays well with his Tory base but divides the Labour opposition, which needs to attract Leave supporters if it is to have any chance of regaining power. For this reason, in the middle of 2021, some British analysts confidently predicted that Johnson would be in power for another decade.
More recently, however, there have been signs that Brexit is no longer the electoral catnip it once was. A recent poll conducted for my organization, UK in a Changing Europe, illustrates a degree of concern over Brexit’s impact: 56 percent of respondents thought Brexit has had a negative impact on the supply of food and goods, and 51 percent thought it had adversely affected the cost of living. According to the poll, a third of Leave voters now feel that the cost of living has been negatively affected by Brexit. If these problems become more acute, it might offset whatever rallying effect Johnson hopes to gain from a public fight over the Northern Ireland Protocol.
Perhaps more concerning is the fact that for the first time, Leave voters who believe Johnson is doing poorly outnumber those who believe he is doing well. After he won in 2019, 74 percent of Leave voters said he was doing a good job. As the pandemic hit, in April 2020, that rose to 86 percent. That number has now fallen to 38 percent. Gratitude does not last long in politics
Meanwhile, the opposition Labour Party is, for the first time, beginning—tentatively—to try to weaponize Brexit. Divisions within the party over the issue had previously led to a more cautious approach, with Keir Starmer, leader of the opposition, preferring to avoid the subject altogether rather than risk internal disputes. More recently, however, Starmer has floated the slogan “Make Brexit Work.” It is a way of questioning how the government has handled Brexit, as opposed to casting doubt on the decision to leave the EU in the first place.
As time passes and the pandemic hopefully recedes, it will be more difficult to blame the United Kingdom’s continued stuttering economic performance on lockdowns and other COVID-19 restrictions. Consequently, it is conceivable that Labour will have some success in linking disappointing economic outcomes to Johnson’s Brexit deal and continued uncertainty over its stability.
Prediction can be a futile exercise, and all the more so when it comes to contemporary British politics. After all, less than a year ago, as the Johnson government hailed its successful vaccine rollout program, there was much talk of what the prime minister intended to do with the ten years in power that seemed to await him. Now, however, as he is haunted by stories of sleaze, by accusations of ignoring his own COVID-19 guidelines, by rebellious backbenchers, by increasingly brazen potential leadership challengers, and by a misfiring economy, the prime minister’s position suddenly looks highly precarious.
What that means in terms of his own future or the relationship between the United Kingdom and the EU is not easy to discern. As things stand, however, the signs are that the British government has softened its approach on the Northern Ireland Protocol somewhat, the implication being that the government has neither the bandwidth nor the appetite to add outright confrontation with the EU to its long list of problems.
None of which is to say that a rapprochement with the EU is in the cards. Brexit has turned the United Kingdom and the EU into competitors, with Johnson and his ministers quick to pounce on any signs of the United Kingdom performing better as evidence of the benefits of Brexit. When it comes to foreign policy, a marked reluctance to talk about, let alone contemplate, cooperation with the EU looks set to continue.
Even if the United Kingdom and the EU resolve their outstanding disagreements over the Northern Ireland Protocol, a wary truce is probably the best-case scenario. As long as the Conservatives remain in power in the United Kingdom, last year’s Trade and Cooperation Agreement will provide the basis for bilateral relations, with little prospect for deepened cooperation beyond its rather limited terms. Brexit may no longer be a political trump card for Johnson: instead, its consequences, both domestically and internationally, may soon begin to haunt him.