The Three Brexiteers
21 Jul 2016|

Image courtesy of Flickr user Pascal

Any hopes that the swiftly-engineered coronation of Theresa May meant the Brits were going soft on Brexit have been squashed by the instant elevation of a trio of hardened eurosceptics—Boris Johnson, Liam Fox and David Davis. With three Brexiteers running the Foreign Office, the new Ministry of Trade and London’s Brexit negotiations, the UK Prime Minister’s intentions are clear: there’s no turning back.

The key appointment isn’t Johnson’s, but Davis’; now officially ‘Secretary of State for Leaving the European Union’. Just three days before his appointment, this 2005 Tory leadership contender published a prescient strategy for Brexit, which should be compulsory reading in foreign affairs ministries. It’s a full-throated exposition of the Brexiteers’ global free-trade manifesto, it pitches UK as the new go-getter on the world stage, and it fires a warning shot straight across the EU’s bow.

Critically, Davis’ appointment looks like nixing the soft-Brexit option, which would try to fudge UK’s exit and leave UK essentially inside the EU Single Market. Instead, EU leaders will face someone who isn’t in a rush, believes he holds the best negotiating cards, and won’t sign up to anything resembling the ‘Norway Option’ for UK’s future role in Europe.

Two key elements stand out immediately: first, Davis’ insistence on an immigration system than allows UK to control numbers; second, his insistence that UK must halt then reverse EU-derived market and product regulation. These aren’t negotiating points, but a new vision for how the political economy of post-Brexit UK will work. To Davis, lower migration means higher wage rates for ‘… the great British industrial working classes [who] voted overwhelmingly for Brexit,’ and less regulation means faster economic growth.

Neither of these two objectives are compatible with membership of the European Economic Area (EEA). And while Davis’ stated goal is ‘tariff free access to the Single Market’, he, like Andrea Leadsom, isn’t afraid to have his bluff called by EU. Davis makes clear that UK can calmly contemplate trading with EU on World Trade Organisation (WTO) terms by using customs duties on EU imports to indirectly assist industry.

In any case, if push really came to shove, UK industry would do comparatively well out of reverting to WTO rule on its EU trade. With big deficits across its four-biggest EU trading categories—vehicles (-£28.5 billion), mechanical & machinery (-£10.5 billion), electrical equipment (-£10.2 billion) and pharmaceuticals (-£6.5 billion)—even the hint of tariffs will see industrial investment surging back into UK. May’s government has a strong hand to play, and her Brexit minister knows it.

So what do these appointments mean for the rest of the world? The first point is that UK is likely to become outward looking very quickly. Countries like China, India, Canada, Australia and New Zealand will be receiving calls from Liam Fox’s new Trade Ministry asking how quickly they can put together trade delegations—and in the case of latter three, how quickly they can loan the UK the negotiators themselves. Malcolm Turnbull has already indicated Australia’s willingness to “get moving on [trade talks] quickly.”

Incidentally, the US probably won’t be at the front of the trade-agreement queue. That’s not out of pique, but simply because the US is already the UK’s biggest single trade partner, generating surpluses of £10 billion per year in goods, and a whopping £5.8 billion per quarter in services. The UK won’t disturb that trade relationship in a hurry, and certainly not until its trade teams have gained experience.

For countries like Australia, however, the opportunity is there for the taking, in particular in agriculture. Unwinding the subsidies and protections that form part of the Common Agricultural Policy will be excruciating, but it will happen. Unlike EEA countries, the UK has a long history of preferencing cheap food over country lifestyles, from the 1906 ‘Cheap Loaf’ election to the 1846 Repeal of the Corn Laws. Freed from the EU’s high agricultural tariff rates—where averages range between 8% and 18%, and often reach dizzying heights—UK has plenty to offer antipodean wine, beef, grain and dairy exporters.

The second take-away is that UK’s economic prospects have more pluses than might appear. With policy in the hands of free-traders, UK business will anticipate greater access to world markets, as fast as the UK can deliver. Global foreign direct investment that once flowed seamlessly past UK to continental Europe will have to think again, at least until the UK’s divorce comes through. And with Sterling settling at around 14% lower against its 2015 dollar average, exporters have an immediate adrenalin shot.

But the big takeaway is one of attitude and outlook. Since the referendum, many UK Remainers, as well as European media and overseas analysts, including ASPI’s Peter Jennings, have interpreted Brexit as a self-inflicted wound, with UK’s gulled electorate taking a gratuitous swing at foreigners, globalisation and UK’s global role. May’s government won’t see it that way. At one stroke, she’s put people who genuinely believe in the trading, economic, and foreign policy advantages of EU disengagement into the Brexit driving seat.

Of course, the Brexiteers—Johnson, Fox and Davis—could be wrong. The economy may turn sour, and UK trade negotiators may struggle to identify the optimal trade partners and deals. But if foreign ministers in Washington, Beijing and Canberra are anticipating a humbled tenor to calls from London, they’re in for a surprise.