Post-Brexit Panic The Result Of Extremist Propaganda, Not Reality

Posted on Fri 07/01/2016 by

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20080605_hawkins_b_2008By William R. Hawkins ~

Much of the panic in financial markets in the immediate aftermath of the British vote to withdraw from the European Union is the result of the extreme campaign of fear waged by those who wanted the United Kingdom to Remain in the EU and lose its national identity. Nothing has actually happened, since the withdrawal negotiations under Article 50 of the EU 2007 Lisbon Treaty have not started and could take up to two years to complete. Over such a period, markets will adjust as reality manifests itself over propaganda and ideology.

20160622_brexit_EU2016The Remain camp relied heavily on the claim that if the UK pulled out of the EU it would lose access to the “single market” presented by the other 27 member states who together comprise the largest “free trade” area in the world. However, one does not have to be an EU member to trade with the EU. The United States is not a member, yet does more total trade (imports and exports combined) with this market than any other. The EU was America’s second largest export market ($276.1 billion in 2014); just behind Canada whose proximity has always promoted economic integration. Proximity will aid the UK is maintaining trade flows to the European continent.

The simple average tariff levied by the EU is 5.0% according to the World Trade Organization, but this average is raised by the higher 12.5% average tariff on agricultural products. The EU is very protective of its farmers and sensitive (as most countries are) to food security issues. The non-agricultural tariff only averages 3.9%. Tariffs are lower for machinery and general manufactures, but higher (4.1%) for transport equipment. Still, the scale is hardly prohibitive.

The UK problem with the EU is similar to that of the U.S.; it runs a large trade deficit. A benefit of independence will be that London can now design its own trade policy tailored to meet the needs of domestic producers and exporters; and to use as leverage in negotiations. One reason Chancellor Angela Merkel seems inclined to be practical rather than vindictive in post-Brexit talks is that Germany runs a large trade surplus with the UK, exporting double what it imports. Berlin will want to protect that advantage, though London may not find continuing such a lop-sided relationship to be in its interests. Brexit was carried by voters (and workers) who felt disadvantaged by the outsourcing of jobs to foreign lands (both inside EU and out) and the influx of cheap labor from Eastern Europe that drove down wages.

America’s problems with exporting into the EU has stemmed more from regulations that tariffs. The latest (2015) report from the U.S. Trade Representative’s office focuses mainly on agricultural issues and EU member subsidies to Airbus in the strategic rivalry with Boeing. European attempts to protect its farmers from the superior performance of their American counterparts goes back into the 19th century and has usually centered on the tactic of claiming there is something unhealthy about U.S. meat, grain and dairy products. Biotechnology, a field in which the U.S. is the world leader, has given the EU a new angle on this old, dishonest ploy. These two issues, however, should not give the UK the same degree of trouble in dealing with the EU. This is especially true of the Airbus case since the design and manufacture of wings for all Airbus models is done in the UK. The British aerospace firm BAE did, however, sell its 20% share of Airbus in 2006 to its continental partners, in part so it could better position itself to work “politically” with American aerospace companies. This has paid off. In 2014, BAE was the eighth largest defense contractor supplying the U.S. military.

President Barack Obama took considerable heat for claiming that if Brexit won, the UK would “go to the back of the queue” in trade talks. The opposite should be the case. In 2013, Obama opened the Transatlantic Trade and Investment Partnership (T-TIP) negotiations with the EU in an attempt to overcome some of the EU’s bureaucratic barriers to American exports. These talks have stalled with Brussels not showing much interest in reforming its ways. Washington should immediately open talks with UK now that it is out of the EU’s clutches. An Anglo-American trade agreement would not only help our best ally weather any vindictive moves by the EU, but put pressure on the EU to reform or see UK steal a march on it in the massive U.S. market. In the wake of Brexit, Obama said the vote would not harm the “special relationship” between America and Great Britain. He should act on these words.

Undoubtedly the extremist propaganda of the Remain campaign did make the vote closer. Yet, as many observers noted well before the polls opened, what the UK public was feeling transcended economics. The British people wanted independence, the power to decide their own fate and to preserve their great traditions and values. It is a civilization that has known no equal in the modern world. The birthplace of the Industrial Revolution and parliamentary democracy, it spread its seed around the globe before passing the baton of world leadership to the United States. It would have been a great tragedy had the UK allowed itself to be absorbed by the EU. And it would have been a great loss to America if its “cousins” had been pulled away.

Though U.S. leaders championed a closer EU during the Cold War, it made no sense to push for anything beyond a common market and the NATO military alliance. Because of the constant shifting of governments in democratic systems, there will always been some European states Washington can work with, and some it can not. Only “coalitions of the willing” are viable. A de-centralized Europe will provide more opportunities to find partners who can be recruited in a crisis. It should be remembered that on the eve of the Iraq invasion in 2003, France and Germany voted against the U.S. at the United Nations. But the British fought at our side, as did Italy, the Netherlands, Denmark, and Portugal. Spain initially sent troops as well, but chickened out in 2004 after the Madrid terrorist train attacks. Bulgaria, Poland, Rumania, the Czech Republic, Slovenia, Hungary, Estonia and Latvia, who did not join the EU until 2004 or later, showed their solidarity with America by sending forces to Iraq, even if only on a token basis.

But Afghanistan has really shown how U.S. diplomacy should redirect its efforts when looking to strengthen alliance systems. The Afghan campaign was officially a NATO operation because the 9/11 attacks on the U.S. were launched from there. Many NATO members sent military units to fulfill their obligation to come to the mutual defense of members. However, the real fighting was done mainly by the remnants of the old British Empire: UK, U.S., Canada and Australia. The Netherlands also swung above its weight, but Dutch troops served with the Duke of Wellington at Waterloo too. Identity politics, reinforced by well-crafted economic policies, should pull London away from Europe and back towards a global alignment of English-speaking democracies. The reunion of the creator of the modern world with its progeny is the best hope for the continued progress of civilization in the 21st century, in keeping with the history of the last three centuries.

FamilySecurityMatters.org Contributing Editor William R. Hawkins is a consultant specializing in international economic and national security issues. He is a former economics professor and Republican Congressional staff member.

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