The EU: Trade policy in times of Brexit

There are five key issues surrounding the EU’s role in the world economy.

  1. The Future of the EU itself

It is currently fashionable in much of the US and UK to predict the imminent collapse of the EU, in the light of the Trump and Brexit election results. It is much less fashionable, though, among collapse-predictors to give a coherent explanation why it might collapse – except for the clear shortcomings of the Euro and the Schengen frontier-free policy in most of the Continental EU.

It was certainly true that support for the EU was weaker in a number of countries (including France) before the UK referendum than in the UK itself.  But public opinion polls showed antipathy to the institution immediately decline outside the EU after the referendum. Since then:

Three post-Brexit major challenges to the EU have failed to have the  adverse effects predicted.

It was widely predicted that, if Italians did not support their Prime Minister in a December 2016 constitutional referendum, anti-EU political pressure would build up.  The Prime Minster lost: Italian politics went on unchanged.

It was also predicted that a right-wing party, the  FPÖ, would win the December Austrian Presidential election. It did not – and is not in any case in favour of leaving the EU. It is strongly anti-Establishment and opposes the admission of more migrants – but it has never campaigned to leave.

Media predictions that the Dutch election in March would result in a victory for the anti-EU, anti-Islam,  PVV party have failed to materialise. The party trailed the leading Liberal party, and the swing to the PVV was less than to the mainstream Christian Democrats,  Greens and Democrats 66. At no  point in the previous five years was it ever likely that the PVV could win this election.

The outcome of two impeding elections is unclear

Right-wing parties antipathetic to some EU policies are thought likely to get higher votes in 2017 in two key national elections than in the last election.

France (Presidential election April 27) As of March 15, polls gave the populist National Front candidate Marine Le Pen 26.5% of the poll, making her likely to win the first round. All polls predict she would lose the second, May 7, round to more centrist candidates, though one Singaporean venture capital company – with no track record in predicting elections – claims to have an artificial intelligence program that predicts her winning round 2. Le Pen’s opinion poll support has also fallen since Trump’s inauguration. If elected President – a role with far greater power than its US equivalent – Le Pen would call a referendum on EU membership within 6 months unless France renegotiated control over its currency and  borders.

Germany (Parliamentary election September 24) As of February 15, the anti-immigration Alternative for Germany (AfD) had 9% of opinion polls – down about a third from its peak before Trump’s inauguration and close to a level where it may get no places at all in Germany’s 630-seat Bundestag. If in power, AfD would tighten Germany’s borders, have a referendum on the Euro and possibly expel some migrants. But it does not seek to leave the EU or encourage its break-up.

The greatest threat to the EU’s existence is clearly a May 7 Le Pen victory in France.

A far likelier outcome of national elections, though, is increasing pressure inside the EU to change policies on the Euro, on the Continental Western European countries’ largely uncontrolled borders with each other, and on trade openness. Voters are not reflecting anglophone media hysteria – but voter support for the EU’s current orthodoxies is falling sharply.

2. The EU’s trade relations with the US

The EU’s Trade Commissioner Cecilia Malmström said in a January 24 speech that the “The election of Donald Trump seems likely to put our EU-US [TTIP] negotiations firmly in the freezer at least for a while”.

But the EU and US both dominate the other’s international trade without a free trade deal – and the EU’s bigger concern is to keep that flow going. Its campaign against American proposals for border taxes was described by Chad Bown, an expert on WTO trade disputes at the Peterson Institute for International Economics, as opening the door to about $385bn a year in trade retaliation against the US.

3. The EU’s spider web of other trade deals

Notwithstanding triumphalist rhetoric from populists in the EU, UK and US, the EU’s official appetite for more free-trade deals remains.

On February 15, the European Parliament agreed the Comprehensive Economic and Trade Agreement with Canada, abolishing tariffs on 98% of EU-Canada trade. Earlier in the year, the EU agreed agendas for further liberalising trade with Mexico  and for starting free trade talks with Indonesia. The process of implementing a free trade deal with Vietnam continues. Australia declined an invitation from the UK to start trade talks because it gave negotiations with the EU higher priority.

4. Trade relations with China

Meanwhile, a separate row seemed to be brewing with China. A planned EU-China Investment Agreement has been under negotiation since late 2013, and was intended by both sides to pave the way for closer relations. But the EU now sides with the US and Japan in a complex argument over how to manage China’s grievances at the WTO.

China has taken offence at this, and is now threatening to call off the Investment Agreement talks.

As with the TTIP. Europe and China have been trading happily without the agreement bow threatened: the China/WTO argument may escalate as dramatically as the US Border Taxes one

5. Then there’s Brexit

The EU like to pretend Brexit’s Britain’s problem. But the EU has a substantial net trading balance wit Britain, relies on the healthy British jobs market to find careers for 3 million EU citizens the other 27 would otherwise have on their unemployment books and is a significant net financial contributor to the EU administration. And it pushes the rest of the EU towards freer global trade

A botched British exit will damage the EU. At a time the EU has a lot of other challenges.

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