Coronavirus and hard Brexit — the last combination the UK needs

Hi from Brussels. If there’s one thing you should read today, once you’ve read Trade Secrets, it’s this excellent ebook from the good people at VoxEU about how protectionism really isn’t the right trade response to coronavirus.

Today’s main bar is on how the UK is choosing to follow the corona shot with a hard-Brexit chaser, literally the last combination of libations we need. Tall Tales of Trade is about the latest reading of the last rites over an EU that, weak and uncoordinated as it is, isn’t dead yet, while Charted Waters shows the decline in US exports led by consumer goods.

Meanwhile, the big issues here in Belgium, as over much of Europe, are: 1. How and when the country exits lockdown and 2. Where did all our nice weather go? (apparently it’s going to start improving again next week).

Don’t forget to click here if you’d like to receive Trade Secrets every Monday to Thursday. And we want to hear from you. Send any thoughts to trade.secrets@ft.com or email me at alan.beattie@ft.com.

Trade negotiations

Brexit’s back, and this time it’s terminal

You’d have thought that the global trading system in general and Europe in particular had enough going on right now without a renewal of the Brexit imbroglio to complicate and distract. “NOT NOW, BREXIT” is our initial reaction.

But on they go. The first of three negotiating rounds on final trade arrangements concluded last week with predictably little progress being made. The big deadline is the end of June. By that point the UK either asks to extend the transition period during which it remains under the EU’s trade regime or commits to leaving at the end of the year.

It’s hard to find a single trade type (without a direct career interest) who thinks failing to extend is anything but a potential disaster. It’s highly unlikely the UK and the EU will have anything but a minimal preferential trade agreement (PTA) in place by end-year. Result: big border frictions, possibly tariffs, certainly rules of origin problems, derecognition of professional qualifications, Uncle Tom Cobley and all.

But Boris Johnson’s government has not only repeatedly said it won’t ask for an extension, it’s actually deliberately blocked the bolt-hole from that position. Initially it seemed as if it might be executing one of its traditional blame-shifting exercises, trying to force the EU to be the one to ask. But it then made a pre-commitment gambit, an unequivocal statement that it would not agree to an extension even if the EU asked, raising the cost to itself of a retreat.

At the same time, it has also turned up the rhetoric about its participation in other PTAs, a performative chuntering it evidently thinks will scare the EU into giving it a generous deal for fear of losing UK market share. The new British ambassador to the US sounded off last week to Politico about wanting to start bilateral trade talks (on hold since March because of the pandemic), suggesting a relaunch is fast approaching. Liz Truss, the UK trade secretary, pointedly mentioned potential UK membership of the CPTPP in a tweet she sent about a joint op-ed with ministers from Australia, New Zealand and Singapore this week.

Karen Pierce, the new British ambassador to the US, sounded off last week about wanting to begin bilateral trade talks © Bloomberg

The most terrifying explanation is that Johnson’s government genuinely believes its own rhetoric. The UK’s deal to leave the EU in 2019, accepting a border down the Irish Sea and hiding it with a Potemkin customs arrangement, was correctly regarded by most trade types as a capitulation disguised as victory (a Dunkirk analogy here rises in our throats, but you’re doubtless as sick of WW2 metaphors as we are, so we’ll swallow it). Perhaps the UK government really thinks it faced down the EU and got major concessions and can do so again? Gulp.

Also in the delusion column is an idea you hear kicking around Brexiter circles that a Brexit hit to trade will barely be noticed on top of the coronavirus shock. Thus the UK can beget a Year Zero of reformulating supply chains.

These are both bonkers, obviously. In the latter case, it’s worth remembering that coronavirus affects people, not things. Largely mechanised processes or those with socially distanced workers, such as producing food, have thus far been remarkably unaffected by the disease. By contrast, port and border frictions damage all goods trade, and problems with professional qualifications will damage even services delivered via a Zoom call. Being hungry as well as furloughed won’t be an improvement.

There’s a far darker view, that the government is betting the public won’t be able to tell the virus shock from the Brexit shock. It would be a savagely cynical strategy, but one definitely beneath Johnson’s government? Probably not.

Mistaken? Cynical? Both? Hard to tell. In any case, our prediction at the beginning of the year that the UK would ask for an extension under whatever pretext it could find is still our default, just about. But the odds against have shortened considerably.

Charted waters

The US export downturn is accelerating — blame consumers and lower oil prices (the latter is included in, but not broken out from, the industrial supplies line). Consumer goods were put at 12 per cent of US exports last year, at $206bn.

Tall Tales of Trade

We noted last week the overly dramatic “make-or-break” expectations ahead of the European leaders’ summit, claiming that if the EU and specifically the eurozone didn’t agree a big centralisation of budgetary and fiscal power that the union was doomed. Well, they didn’t, it’s been a week and the EU is still here.

An exceedingly flippant takedown of a straw man, fair enough. But as we discovered during the Greek financial crisis, where there were similarly overheated predictions of Grexit from the euro or even the EU, the union can underperform for a long time without breaking up.

Via our comrades at the FT’s Brussels Briefing, we bring you noted Dutch historian of the EU Luuk van Middelaar (in German, the Google Translate version works OK). He articulates much better than we could why, even given its dismal early failure to come to the rescue of pandemic-stricken Italy, the EU is not on the point of collapse.

Ursula von der Leyen, president of the European Commission, attends the EU leaders’ summit via video conference last week © Etienne Ansotte/European Commiss

Don’t miss

• Europe’s largest economies have begun to chart a way out of the coronavirus lockdown measures that have closed swaths of activity and drastically reduced social contact.
  Read more

• “Where did it all go wrong?” It’s a question some of the world’s biggest trade finance banks will be asking themselves after the collapse of Hin Leong Trading.
  Read more

• In the past month, daily life in Nanjing, eastern China, has been tentatively returning to normal, following several weeks of lockdown to help combat the spread of coronavirus. Boris Mei, a 39-year-old who works in the export industry there, is among a rising number of Chinese looking to buy property overseas.
  Read more

Tokyo talk

The best trade stories from the Nikkei Asian Review

• Dealing another blow to aircraft makers, All Nippon Airways will delay the delivery of 13 aircraft and postpone payments to Airbus and Boeing, the airline’s president said in an interview with Nikkei.
  Read more

• As daily spot contracts for oil tankers surge past $200,000 to store excess crude, executives at Japanese shipping companies are bemoaning recent reforms that descaled their fleets. 
  Read more

Source: Economy - ft.com