Pundits condemn Britain’s tough line on Brexit. They’re wrong

Credit: washingtonpost.com

Pundits condemn Britain’s tough line on Brexit. They’re wrong

German piglets being readied for market. British critics blame German hog farmers for undercutting British producers with cheap pork. (Getty Images)

Britain is about to start negotiations over its exit from the European Union. As our new book “Brexit — Why Britain Voted to Leave the European Union” shows, Britain’s negotiators had little choice but to press for a “hard” Brexit, in which their country would pull out of European market arrangements and the free movement of workers. Even so, they are in a better bargaining position than many pessimists claim.

Here’s how Brexit is unfolding

In the referendum last June, 51.9 percent of British voters opted to leave the E.U. Nine months later the Conservative government triggered Article 50 to start the Brexit process. In theory, this provides up to two years for negotiating Britain’s exit from the E.U.

Prime Minister Theresa May is looking for what many in Britain call a “hard Brexit.” This would involve four major steps: (1) withdrawing from the single market (the rules that allow businesses in the E.U to sell and operate easily across borders) (2) withdrawing large parts of the customs union (under which E.U countries do not impose tariffs on each other), (3) ending the principle of free movement of labor which permits E.U. nationals to travel and work freely across member states, and (4) terminating the jurisdiction of the European Court of Justice. If no deal is agreed, then May has threatened to walk away.

This is controversial — but the alternative is politically impossible

Many Conservative members of Parliament have welcomed May’s position but other notable figures, including former prime ministers John Major and Tony Blair, have criticized her hard-line stance. They predict that leaving the single market and ending free movement of labor will damage Britain’s economy. These people urge that Britain should negotiate a “soft Brexit” which would keep it as closely aligned to the E.U. as possible, with some shared market institutions and continued freedom of movement.

Figure 1. Percent Voting for Brexit by Attitudes Toward Immigration

The problem is that a soft Brexit would probably be politically toxic for May and her party. Our research suggests that the government needs to end free movement of labor with the E.U. if it wants to retain broad public support. As our book discusses, British voters have long supported cuts to immigration. The above figure shows that attitudes to immigration were strongly associated with Leave voting in the referendum. 72 percent of those wanting to cut immigration voted Leave as compared to only 5 percent of those who wished to increase it.  In the larger electorate, 63 percent wanted less immigration and only five percent wanted more. Anti-immigration sentiment has remained strong since then.

If the prime minister reneges on immigration, it would seriously damage her popularity and might split the Conservative Party. It also would re-energize the populist right-wing UK Independence Party (UKIP) which has based its appeal on anti-E.U. sentiments and the claim that none of the mainline parties can be trusted on immigration. May is undoubtedly aware of the political dangers posed by accepting a soft-Brexit deal and, if the E.U. tries to insist on free movement, then the negotiations almost certainly will fail.

Economics helps explain hostility to migration

Some hostility to E.U. migrants likely stems from racist prejudice, but our research indicates that much of it is driven by perceived economic threats. The large influx of unskilled migrants from central and Eastern Europe reduced wages and increased unemployment among low paid and poorly educated Britons. This helps explain why older working class voters strongly supported Leave in the E.U. referendum.

E.U. negotiators might be willing to compromise on free movement of people to reach an agreement. A final deal might formally return control over immigration to the British government. This might still allow the Britain to bring in skilled professionals such as doctors and nurses and scientists, while blocking the immigration of politically unpopular unskilled and semiskilled economic migrants from the E.U.

The UK may need E.U. markets less than people think

Even if E.U. negotiators make concessions on migration, they will probably be reluctant to allow Britain unlimited access to the single market for fear of emboldening Euroskeptics in other E.U. states. This may matter less than people think. Many claimed that Britain’s exit from the single market portends economic disaster. However, in our book we present evidence that trade openness has not stimulated British growth in the long run. This is because years of multilateral trade negotiations have reduced tariffs and other barriers to trade to fairly low levels across the world. Even if Britain left the single market it would not affect trade much, since trade would still operate under World Trade Organization (WTO) limiting tariff and non-tariff barriers.

The need to avoid an overvalued pound is far more important to the British economy. A strong pound reduces exports and increases imports and so helps to create domestic unemployment. Our research looks at how an overvalued pound has hampered growth in the past, and a weaker pound has helped it. Indeed, the shock of the Brexit vote was partly cushioned by a falling pound, helping to protect the economy from a post-Brexit recession.

While the E.U. will want to make as few concessions as possible, its bargaining position is weaker than people think. In 2015 the E.U. took 44 percent of British exports valued at £223 billion ($285.2 billion), while 53 percent of British imports worth £257 billion ($328.7 billion) came from the E.U. This trade imbalance of £34 billion ($43.5 billion) is a bargaining chip for Britain and it may deter E.U. negotiators from taking a hard line, since the E.U. would lose more exports in a trade war than Britain would, although both sides would be damaged.

A messy divorce might lead to high alimony

The E.U. has laid out a “phased negotiations” strategy in which discussions on the future relationship between Britain and the E.U. will only happen after London has reached a settlement with the E.U. on its financial liabilities and the rights of citizens. May wanted to negotiate both aspects at the same time. However, this is not a serious impediment to a deal because of the long-standing European practice of declaring that “nothing is decided until everything is decided.” Any agreement on alimony in the divorce settlement in the early stages of the negotiations can be revised later if the E.U. subsequently tries to impose harsh terms on its future relationship with Britain.

The Brexit process will take many years to complete and there will almost certainly need to be transitional arrangements to avoid an abrupt cliff-edge divorce in 2019. Both sides have an incentive to come to a reasonable compromise that acknowledges the reality of post-Brexit politics in Britain and the E.U. as well as economic connections that could benefit both parties in the future. That said there are no guarantees that this will happen. May has just announced that she intends to call a general election for June 8. Should her Conservative government fail to win a parliamentary majority in that contest, all bets on the future of Brexit are most definitely off.

Paul Whiteley is a professor in the department of government at the University of Essex; Matthew Goodwin is a professor in the department of politics and international relations at the University of Kent; Harold Clarke is the Ashbel Smith professor in the School of Economic, Political and Policy Sciences at the University of Texas at Dallas.

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