Why Britain and Europe Are Destined To Be Post-Brexit Rivals

To justify the cost of Brexit, the British (soon, possibly, to be just English?) government will have to take actions that differentiate it from the EU. These may include tax cuts, diminished worker and environmental protections as well as other radical economic policies which may enhance the proto-UK's near time competitive advantages but weaken it in the long term as its own citizens suffer from the after-effects. JL


Tom McTague reports in The Atlantic:

EU countries are already bracing for British economic radicalism after Brexit including huge cuts to corporate taxes. The EU will have to be “extremely vigilant” in how it negotiates any future free-trade deal with the U.K., wary of a Britain that could look to undercut EU standards while seeking market access to the economies of the bloc’s 27 other member states. The EU’s chief Brexit negotiator said the U.K. would see its market access reduced in proportion to how far it sought to diverge from European standards. How much of a limit should the U.K. place on its sovereignty in exchange for market access?

Much of Brexit is the application of logic to decisions that have already been made.
Thus: British voters decided in 2016 that they wanted to end the right of European Union citizens to live and work in Britain, and to repatriate trade policy to Westminster, therefore the country has to leave the EU’s single economic market and customs union, which are not compatible with either goal. If Britain leaves the EU’s single market and customs union, there must therefore be an economic border between it and the EU. If there is an economic border between Britain and the EU, there has to therefore be one on the island of Ireland, between Northern Ireland, which is part of the United Kingdom, and the Republic of Ireland, which is part of the EU, unless special arrangements are made. And on and on it goes. All of this is

simple logic. And yet at every turn, there is a public outcry when the logical consequence of a decision is confirmed.

This is not only a British disease when it comes to Brexit; it applies to the foreign-policy implications of Britain’s departure as well. Last month, standing alongside French President Emmanuel Macron in Paris, German Chancellor Angela Merkel said something that caused a sensation here in London, even though it was, in many respects, a statement of fact. "With the departure of Great Britain, a potential competitor will of course emerge for us,” Merkel declared. “That is to say, in addition to China and the United States of America, there will be Great Britain as well.”

One does not need to have a view on who will win this competition—or even on whether creating a competition among European powers is a clever idea at all—to acknowledge that at one level, Merkel’s remarks are just the inescapable consequence of Brexit. At its heart, Brexit is a question of whose law applies in whose territory, and of who gets to set that law. Leaving the EU is, by definition, an attempt to exert more control over the laws that apply in the U.K., and this, by logical extension, makes sense only if the U.K. wants different laws from the ones that apply in the EU, which, in turn, means competition where it did not exist before.

The important point, though, is not whether Britain will emerge as an economic competitor with the EU, but what this will mean for the U.K. and the Continent more generally, particularly in an era of American isolationism, Russian aggression, and Chinese economic expansion. Could this economic competition spill over into other fields, such as security and defense? At a recent dinner party hosted by the London embassy of a major European power, attended by senior British government officials, diplomats, politicians, and journalists (including myself), the host ambassador was warned that he could not expect his country’s defense relationship with Britain to be left unchanged if Britain felt unfairly treated, economically, in the fallout from Brexit. “You can’t say, ‘We’ll take your bankers and your Chinooks,’” the ambassador was told by one figure in attendance, referring to British military equipment.
The problem over the past three years has been that the reality of Brexit is obfuscated by Britain’s internal divisions over the type of Brexit it wants. Prime Minister Boris Johnson’s predecessor, Theresa May, sought to blur the essential choice: between close legal alignment with the EU (and less of an economic shock) and loose regulatory alignment (and more of an economic shock). She demanded U.K. sovereign control over trade policy and immigration, yet fought against the inevitable realities of what this meant, particularly in relation to Northern Ireland. Eventually forced to choose, May tried to maintain as close an economic relationship with the EU as possible while protecting her ultimate red line: control over immigration.
Johnson has torn up this approach, stripping out the bits of May’s withdrawal agreement that sought to bind Britain to certain European standards and rules. In doing so, he has clarified the reality of Brexit: legal divergence. Merkel’s remarks are the public acknowledgment of Johnson’s radical break from May. Yet, in another way, these are all shades of the same Brexit gray, which is, by definition, about “taking back control” in order to do things differently from the EU.

One European ambassador to Brussels told me that Merkel was not alone in her concern, even if few set out the reality of Brexit in such straightforward terms. The diplomat, who asked for anonymity to more freely discuss deliberations in the EU’s de facto capital, said that Johnson had, if nothing else, clarified the stakes of Brexit, something May had tried to hide. Still, the ambassador said, this nevertheless causes significant challenges for the EU, which will have to be “extremely vigilant” in how it negotiates any future free-trade deal with the U.K., wary of a Britain that could look to undercut EU standards while seeking market access to the economies of the bloc’s 27 other member states. (The EU has also diverged over how a future relationship with Britain should look: Whereas Ireland, the Netherlands, and other countries with close trading relationships with Britain are likely to push for close economic ties out of self-interest, France has made it known that it will take a hard-line stance in any future free-trade negotiations.)

In an interview with The Guardian and seven other European newspapers, the EU’s chief Brexit negotiator, Michel Barnier, said that the U.K. would see its market access reduced in proportion to how far it sought to diverge from European standards. The EU’s position ensures that the Brexit dilemma will never go away: How much of a limit should the U.K. place on its sovereignty in exchange for market access?
Merkel’s comments in October were not her first warning about the threat of British competition. In Berlin a month earlier, addressing German lawmakers, she said that the U.K. after Brexit would become “an economic competitor on our own doorstep.” She said this would be the case “even if we want to keep close economic, foreign, and security cooperation and friendly relations.” Implicit in Merkel’s observation was the acceptance that economic, foreign, and security policy cannot be entirely quarantined from one another—that each affects the others.

At the time she made those remarks, it still looked possible that the U.K. could crash out of the EU without agreeing on a divorce deal, and there was a feeling in 10 Downing Street that European intransigence was forcing the U.K. into a corner where it would be left with little choice but a radical change of direction in the economy, including huge cuts to corporate taxes. Indeed, certain EU countries are already bracing for British economic radicalism after Brexit. Ireland, for example, is studying the prospect of severe British tax cuts, which could lure away companies based in Ireland, already a low-tax economy, one Irish official told me.
Thorsten Benner, the director of the Berlin-based Global Public Policy Institute, told me that Merkel was right to be concerned about the “inevitable” reality of the U.K. seeking competitive advantages wherever it can find them. “Merkel is taking it seriously,” he said, arguing that her intervention was largely a message to Europe not to be complacent about the threat, despite the bloc dwarfing Britain in economic size. Benner said that one area Europe was concerned about was in relation to China, with the prospect that, once out of the EU, the U.K. might feel compelled to put immediate economic interests over traditional security and defense concerns, offering Beijing closer trade and business ties that could cause friction with Washington and other European capitals.

In Brussels, there is optimism that the security relationship among the U.K. and its European allies, principally France, can be kept separate from any cross-channel economic competition. “We cannot make trade-offs with security,” the ambassador who spoke with me said. He predicted that mechanisms would be found to maintain close security cooperation between the U.K. and the EU after Brexit, whatever economic path Britain takes.
Such a relationship has some precedents. In the 1980s, Japan and the United States were rival economic superpowers, competing with each other for global dominance without ever challenging the security umbrella of American hegemony placed over the relationship. After Brexit, Britain alone cannot be a geopolitical rival to the EU or a military hegemon. It can, however, be an economic nuisance, whether that is good for Britain or not.