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So devastated is the British economy beyond Greater London that only two regions are strong enough to be net contributors to the exchequer – the south-east and the east of England. The rest of the country depends on the buoyancy of London’s service-based economy and accompanying tax revenues to support their schools, hospitals and social benefits.
It is this same economic and trading weakness that explains our current account deficit, estimated to be £85bn in 2018, with a deficit in goods approaching £150bn. [...]
For this is why the consequences of leaving the EU’s internal and external trade framework to trade on World Trade Organisation (WTO) terms are so serious. What’s more, as we learned last week, no trade deals are in place with any of the countries with whom the EU currently has trade agreements. The capacity of our key service industries to trade successfully with Europe and the rest of the world will be fatally undermined.
Our current account deficit will balloon to impossibly high levels, potentially triggering an unstoppable run on sterling. [...]
Strategically, Britain has to do two things – sustain its vital strength in its competitive service industries and start building businesses in every town to bring back economic vitality and the potential for exports. Forget the Brexiter guff about having an “ independent trade policy” – so important we must leave the EU’s customs union, single market and trade agreements it has with 61 countries. “Independence” is besides the point and meaningless. The issue is effectiveness – retaining vital market access for our service exporters; having the heft to make sure key non-tariff standards on intellectual property, safety and product design suit us; and working closely with other medium-size countries to ensure openness in an increasingly protectionist world and menaced WTO. EU membership secures all these goals and, what’s more, is democratic. [...]
Today’s advanced economies are highly interdependent with sophisticated supply chains that span many countries. Many goods and services are complex, differentiated and contain much more “intangible” value – in design, know-how, content – than tangible physical value. Thus the standards, regulations and protocols that frame intangible production, particularly of services, have become the key determinant of whether goods and services, from advertising to mobile phone networks, can be legitimately and competitively traded across national boundaries.
Two overriding conclusions follow. What governs sales of British producers is less price and more whether what they produce meshes with the other parts of multinational companies’ supply chains, conforming to their regulatory and safety standards. Nor is there much scope to quickly re-resource production, if the pound devalues, which is pre-planned and preordained. For many knowledge-driven services, what drives the buying decision is more the rarity of the intellectual property and knowledge being offered.
Brexiters expect devaluation of the pound automatically to stimulate exports, while tariffs are key determinants of exports and imports. Wrong. Falls in sterling are having ever less impact on British exports as the price matters less, one of the reasons leading Brexiter economist Patrick Minford came a spectacular 41st out of 41 economic forecasters for 2018. Exports have been flat. Nor is it tariffs that matter but the non-tariff barriers to trade worth four times as much, especially on intangibles, and which the single market harmonises. [...]
The EU’s trading frameworks put WTO rules in the shade. From aviation to data, chemical production to nitrogen dioxide emissions, the EU sets global standards. There is no nirvana where these regulations can be escaped. The WTO is neither a standard setter, nor does its remit extend to services of such importance to us.
After 29 March, Britain will be on its own, not only trying to replace the EU’s deals with countries dragging their feet, but attempting to open up the US, India and China to our service industries to compensate for what we have lost in Europe. Always protectionist, they have become even more so over the past few years. Only last week, China refused Visa and Mastercard access to its market. [...]