Yes, the trade barriers are coming

I think both Leavers and Remainers probably expected this in the long run – Michael Gove announced yesterday that businesses should “accept” that frictionless trade with the EU will be impossible whatever agreement is finally reached by the deadline of 31 December this year. This is the cost, he says, of making sure that Britain is free to go its own way on a whole host of areas. These include product standards, regulations, state aid rules (which involves the government’s ability to bail out companies), and competition rules (affecting M&A). The EU is keen to establish what it calls “level playing field” rules as a precondition to any deal, including a concept called “dynamic alignment”, which means that UK law automatically updates to keep step with the bloc when it makes any changes to its own laws. It is apparently the government’s view that this concept fundamentally undermines the very point of having left the EU in the first place, as it basically guarantees that no competitive advantages can be sought, and also that the UK continues to follow European Union rules in their entirety despite having left. Gove as Chancellor of the Duchy of Lancaster is in effect Boris Johnson’s deputy PM, and while his comments are softer than chancellor Sajid Javid’s comments the other day – he said business needs essentially to shut up and get on with it – the approach is broadly the same. The Johnson government is exploring some radical policies for the UK including the introduction of ‘free ports’ around the historically neglected coastal towns and cities of the UK, where good will be able to make landfall without being taxed or facing customs procedures – as long as they are just stopping over and are ultimately destined for third countries. The idea here is that such ports would be exceptionally busy hubs of international trade due and as such would require huge amounts of manpower, creating tens of thousands of jobs. It seems likely that Gove and Javid’s views on the unlikeliness of ‘frictionless trade’ are due to the EU’s opening salvo, which is that along with dynamic alignment, it also wants a 25-year unconditional lease on access to British fishing waters. This is a politically significant area of policy given the Common Fisheries Policy, which set quotas for member states of the EU to be allowed to fish in British waters decades ago, is extremely controversial and is blamed by fishing communities for precipitous levels of competition from European trawlers, decimating the British catches. Buckle up, the EU-UK wrangling is just about to get going again, and this time it could be more heated than before. UK GDP was flat in Q4, but that’s history In many ways this is not at all surprising – the period in question was marred by some of the most extraordinary parliamentary deadlock and bitterness in modern British political history. Almost nothing was known about the UK’s future for weeks and weeks –would an election happen, could Corbyn win it, would Boris get a majority, could the Lib Dems even clinch it, would there be a second referendum, would we leave the EU at all? Now that all six of those key questions that hovered around Westminster like locusts in the final months of 2019 have been settled, there are very obvious signs both in national statistics and anecdotally that business confidence has grown. So while the report today from the ONS shows that the UK economy simply flatlined at near 0% overall during the period, things have moved on since then. The IMF has since predicted that the UK growth will outpace the Eurozone for this and the next two years, business confidence is rising across the manufacturing and service sectors, house prices are rising at their fastest rate in two years, consumer confidence inched up, and optimism among purchasing managers is at a nine-month high. It is striking that with the political situation stabilised, and by definition greater certainty having been injected into the national psyche, almost every meaningful metric has started pointing up on the charts.

Yes, the trade barriers are coming

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