The economic case for a clean break from the EU’s protectionist cartel is stronger than ever

The economic case for a clean break from the EU’s protectionist cartel is stronger than ever

The media furore surrounding Boris Johnson’s proposal to the EU demonstrates once again how the debate around Brexit has shifted. Whereas once the debate was dominated by the economic arguments for and against, often weighed against other issues such as immigration and sovereignty, we have come to the point where politicians are focused on the fundamental questions of how we are ruled and where political legitimacy lies.

Whilst many of these questions are worthwhile and important, it is essential that we do not lose sight of the economics. Indeed, once one looks at the data, it is clear that the business case for Brexit has been stronger than ever. Britain may have been the ‘Workshop of the World’ over a century ago but the 21st century UK economy is fundamentally service-based. In 2018, 80% of the UK’s economic activity was linked to the delivery of services, whereas only 20% was due to the production of goods.

Unlike trade in goods, trade in services is largely unaffected by tariffs. It is instead far more dependent on non-tariff barriers including domestic quotas, licences and regulations. Whilst the EU has done some work to reduce some of the traditional barriers to trade in services, it has also introduced a whole raft of other regulations and hurdles with which  British businesses must comply. These regulations, estimated to cost the UK economy around £33.3 billion a year, apply to all UK businesses whether they export to the EU or not.

In 2018, less than 14% of UK GDP was linked to exports to the EU, with exports to the rest of the world contributing just over 16%. The remaining 70% of UK GDP was dependent on UK domestic consumption.

This is understandable when one considers the fact that 99.9% of all private sector businesses are SMEs (small or medium-sized businesses) which are adversely affected by regulations due to their smaller workforce and economic clout. Is it really worthwhile to force 100% of UK businesses to comply with excessive EU regulations on behalf of the 5% that do export to the EU, and who would have to oblige with EU standards anyhow?

Remainers often like to talk of the EU delivering “frictionless” trade through removing tariffs and uniform standards, yet this fails to stand up to scrutiny. If trade with the EU was so easy and lucrative, why is it that the UK’s exports to the rest of the world have grown nearly three times faster than its exports to the EU? This is despite the fact that the UK’s trade with the rest of the world has been restricted by EU tariffs and regulations.

The cost of accessing this “frictionless” trade is also worth considering. Had the UK had been outside of the EU in 2018 then tariffs on our exports to the EU (£5–6 billion) would be half the size of our EU membership fee (£10-12 billion – once you have removed the rebate and EU spending in the UK). Thus in the event of a clean-break Brexit, the government would be able to cover the increased tariffs faced by UK exporters whilst signing trade deals to remove tariffs with the rest of the world.

The years of paralysis that have resulted from the political class’s inability to accept the referendum result has had a negative impact on the UK economy. The uncertainty which has resulted from the farce that is the House of Commons has discouraged businesses and individuals from investing and has forced businesses to put major decisions on ice. Once we have left the EU, this uncertainty will evaporate and we will see a surge in investments with business finally given clarity.

Across the Channel, the outlook is less rosy. The eurozone has been paralysed by its inability to generate domestic demand and is dependent on exports to Anglo-Saxon nations. Yet these are growing increasingly frustrated at the protectionist policies of the EU – as shown in the recent WTO decision against Airbus, and the resultant imbalance in trade. Australia, for example, has a €24 billion deficit with the EU, largely due to demand for German cars, yet struggles to balance that with food and mining exports to Europe due to EU trade barriers.

The long-term future of several key European industries are already in doubt. The German car sector is already facing severe problems due to the decline in demand for the combustion engine, not helped by the diesel emission scandal, and the global switch to electric and hydrogen-powered cars. Add into this the potential loss of the UK market – which consumes a fifth of German car exports and is the market with the highest profit margin – with the imposition of 25% car tariffs in the US and one of Europe’s key industries could soon be facing a perfect storm.

The inability of the EU’s elite to even contemplate relaxing its protectionist policies is alienating much of the Anglosphere. It is highly telling that the EU’s response to Britain’s vote to Leave was to promise a punishment beating “pour encourager les autres”. This European project has transformed from a voluntary economic club into a cartel, demanding protection money from those that it views as weaker than itself – truly a gangster state.

The global economic storm clouds are gathering and the next downturn may be but weeks away. The EU’s intransigence over Brexit may well be the straw that breaks the global economy’s back. Yet free from this protectionist cartel, the UK can quickly adapt and react to changing global conditions in a way that the EU has shown it is incapable of doing. Britain’s long-term future is bright; the bigger question is whether the EU has one.