A note on the Conservative Manifesto in the UK

In the latest note by the conservatives, the UK prime minister indicated that the country will be withdrawn from the European Union’s (EU) customs union. The manifesto pledges that the UK will “not anymore pour “vast annual contributions” to European programs. This move, allegedly, will then lead to economic security and the country’s future prosperity. If anything, such rants about the EU is at best a pre-election propaganda arguing for a “strong UK government” who then would lead the negotiations successfully. Theresa May, arguing “no deal is better than a bad deal” is both senseless and counterfactual.

However, this is no surprise in Britain, where greater part of the campaign before last year’s vote on Brexit was greatly misleading and inaccurate (on health costs, research contributions, immigration). Why is this senseless, again? For two reasons, mainly.
On the one hand, the UK has more to lose than the EU, even if the UK has a trade deficit with the EU. Ca. 49% of the UK exports go to the EU– an overwhelmingly large portion of it are services –, while over 50% of the imports come from the EU. And, the UK exports to other EU Member States has been steadily growing by 6% yearly, since 2003. Finally, the UK has the largest intra-EU trade (ca. 120 billion euro).

Put this all differently, the UK is risking about 15% value of its economy, while the EU is risking around 4-6% of the rest of the EU economy.

There will be borders between the EU and the UK (health standards have to be controlled, administration and accounting has to take place). Even if things play out the best they can: no tariffs, most favored nation clauses; the UK will not have the same privileges of an economically integrated market as the members of that integration. Not necessarily because it would create a bad precedent in the EU – also for that, by the way – but because economic/regional/political integrations do not work that way. It is basic integration economics that for the common goals, members to the grouping have to contribute (also financially) at times, and have to give up part of their sovereignty (mostly for trade and cross-border tax policies). Believing (meaning fooling people) with pride-based trade and ill-fueled negotiation paradigm is irresponsible politics. On the other hand, negotiation strategies based on emotions are the worst strategies. They hardly ever lead to optimal results because they narrow down the interpretations and lead to losing the focus on alternative options. A though ball game and bluffs (as no deal is better no deal is better than a bad deal – what is a “bad deal” by the way?) are only worthy to play if the adversaries do not have the knowledge of what you are about to lose. But the EU has that, the teams dealing with the Brexit negotiations are no strangers to numbers. That is why it continues to employ the transparency card during the negotiations. This makes it very difficult for the UK. Let’s, for a moment, assume that the UK government will instantly recruit people to carry out the negotiations (unlikely, and from where?), and let’s assume that people who voted for the “stay” and are employed by the government all of a sudden change their minds and work hard against their principles and help implement rules that knowingly put them in a worse situation (unlikely, again). There is still to understand why the EU would want a “bad deal” with the UK, with one of its key partners? This is an assumption, rather uneducated, but indeed, political. Nevertheless, at the end, politics rules. EU citizens, companies based in the UK and having EU markets are best advised if they start drawing up alternatives. Not necessarily because the end of the world is about to come. Because border control, potential tariffs, delay in shipping will put them in a less competitive position against their counterparts on the continent.