Post-Brexit International Trade: An Unknown Unknown

By Shebli Khoury

As the debate surrounding the fallout from Brexit centers on the British Isles and the continent to the East, another issue looms. International trade took a hit when British voters decided that Britain should leave the EU, the most integrated trade union in the world. Regionalism, the post-multilateral WTO process, has been dealt a significant blow by British voters, the rise of the far-left and right, and increasing protectionism. If regionalism has been seen as the next best alternative to multilateralism in international trade, then open economies have a lot to be afraid of.

International trade, as a significant type of relationship between countries, has been based on multilateralism and the system set up by the WTO. However imperfect that system may have been in giving different countries a voice in international affairs, they all received a vote and a seat at the table at the WTO trading rounds and, most of the time, benefitted from the equal application of its rules and protection. As the WTO waned in power and influence after easy forms of protectionism were removed and as more powerful players, essentially veto players, joined the negotiations, this multilateralism has been replaced by regionalism. Regionalism is embodied in agreements such as the European Union and is the philosophy behind TTP and TTIP. Regionalism decreases the scope of countries involved in trade agreements by covering countries that lie in a specific geographical area rather than in most of the world, as the WTO multilateral system does. This reduces the number of veto players and allows countries with closer economies to negotiate. The EU is one of the clearest examples of this type of international trade system as it brought together 27 European countries into a single market with no trade barriers between them.

It is now regionalism’s turn to be shaken. The Brexit Vote has shown that the British rejected the single market. Despite statements by some of the Leavers about hastily rejoining the single market in an altered form, the majority in England were driven to vote leave because of the effects of the single market and international trade on their wages and livelihoods. Areas that haven’t been able to reap the benefits of globalisation and trade, especially those outside of London and in traditionally industrial areas were the ones who mostly voted for Leave, with a sea of Remain votes surrounding London. These Leave voters have rejected the vision of a globalised, internationally-oriented world in favour of a strong, nationalist England precisely because they feel they have been left behind in this system. In its place came a hope that an England for the English and run by the English will be more sympathetic and responsive to their concerns than the international elite in London and estates run by Jeeves.

This rejection of the EU has put the one of the big two regional trade agreements, the TTIP, in  a critical state. Britain pushed for the deal and had a significant part to play in it as one of the largest economies in the EU and the economy closest to the US. As it removes itself from the agreement, other countries that have less of a gleam in their eyes when they think of it will surely feel less inclined to push for it in their parliaments. US Trade Representative Michael Froman has vowed to carry on with the agreement, but the rejection by British voters of an open trading globalized economy makes other EU leaders fear that by promoting TTIP, they are empowering similar Eurosceptic movements in their countries.

The British vote has had severe economic ramifications with three trillion dollars wiped out from markets in the two days after the vote – the biggest ever, even bigger than the 2008 crisis. But the longer term effects on international trade might be even more worrying. Regionalism has been thrown into uncertainty with its biggest two manifestations at risk. Even if both do survive because they’re too big to untangle, voters have rejected the values that underpin them. TTIP has been viewed negatively by many as undemocratic or harmful to the livelihoods of millions, but it was the only form on the table to promote international trade. Shutting off markets will have far more negative effects than TTIP. The benefits of international trade from stronger economies, more competition and choice, and open, outward-looking societies are now at risk. Multilateralism has stalled for years. The only alternative, regionalism, has been rejected. What saves international trade – globalisation, open economies, and open nations – needs to be found, and when it is found, has to be approved by angry voters. It would be an easier task if the new model takes much more interest in those that have been left behind by globalisation and inequality, while emphasizing the benefits of international trade. Economic growth for all would be a better trade model with a broader and stronger appeal. All in all, a very daunting task, but one that could make our world a significantly better place.

 

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