Is the UK Still Confident of An Upper Hand in Brexit Negotiations

As of the 31st of January 2020, the UK is no longer a member of the European Union. Three years of negotiations following the shock result of the 2016 EU Referendum have resulted in little progress. Political wrangling aside, the process of exiting the trade bloc after more than 40 years of membership was always likely to be a mammoth task. So where are we now? While it is clear that little progress was being made on building a reciprocal trade agreement, COVID-19 stopped the process in its tracks. While the UK was confident of a successful post-Brexit, COVID-19 and the economic fallout will not help. The British economy has come to a standstill and restarting it will be no mean feat. Factor in Britain losing its closest trading partners and the omens are not good.

While the British public was lead to believe that the Brexit negotiations would be straightforward, it has not turned out that way - far from it. Political bickering has meant that rather than an easy ride, the trade negotiations have turned into a stand-off. So, with what has already happened and with a challenging economic outlook, does Britain still hold all the cards? In this article, we're going to analyse whether they actually do.

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Does The UK Have An Upper Hand In The Brexit Negotiations?

One of the key ideas of the Brexit campaign was that a trade deal would be easy as the government felt that it had the upper hand. If you look at the facts, it is easy to see how they came to that conclusion. In 2019, the UK had a £72 billion trade deficit with the EU, this means that the UK is a huge importer of goods from the bloc. it is not a surprise, as the UK relies on EU nations to provide food, goods, and services that are generally cheaper to produce than they would be in the UK. They also provide vital items and services that are not produced in the UK, such as out of season fruit and vegetables. This has meant that the UK has benefitted from its buying power as a large-scale net importer. In a fiscal sense, the UK's financial power does give it leverage.

As well as the financial aspect, there is also merit in the idea that the number of EU citizens residing in the UK gave it leverage. With over three million EU citizens in the UK, the country is a hot spot for EU migration, this meant that the rights of those citizens were always key to a deal. While unlikely (and likely unlawful) to repatriate EU citizens, tightened restrictions could mean a shift in migration moving forward. For many EU countries, they could simply not afford a vast number of citizens returning to their countries of origin. So on this point, you might have to concede that the UK has the upper hand.

As we've looked at, the UK has financial leverage and is home to many EU migrants. While these factors mean that the EU needs to look at a trade deal seriously, there is also the fact that Britain will struggle to trade elsewhere. We have all heard about the US/UK trade deal that is soon to take place, but in all seriousness, the US is too far away to make sense. Looking at items such as food, the cost of importing from the US, and the time necessary to move the goods, makes little sense. There is also another logistical issue: customs procedures. While the UK can move goods across the border with no checks from the EU, there is no process in place for this to happen with the US. For British businesses to trade with US counterparts, a whole new ecosystem needs building in a matter of months! A trade deal with the US may make sense for some goods and services in the long-run, but in the short-term, this cannot replace the EU/UK trade that currently exists. On this point, the idea of the UK having an upper hand looks a little shaky.

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What Happens If the UK Does Not Agree To A Trade Deal With The EU?

So, it seems that it is far from clear whether the UK has an upper hand in the trade negotiations with the EU. What we must look at now is what happens if, there is no deal at the end of the current transition period? The short answer is that we do not know. The UK will be in uncharted territory, as there will be no other deal in place (the UK/US deal may take years to finalise). What we do know is that if the UK has to trade with EU countries on World Trade Organisation tariffs, the cost of many of our goods and services will rise. There will also be at least a short period of supply chain issues as UK Border Force will strain to keep up with customs entries for goods coming into the UK from the EU. This will cause short term shortages as importers start to work with new rules.

Another factor that we haven't taken into account is the long-term fallout from the COVID-19 pandemic. The UK is going to have an astronomical cost to absorb after the outbreak, and this will only add to the woes. The economic cost, combined with reduced migration and a weakened ability to trade may mean that the UK might need to accept a trade deal that isn't ideal. As this may mean our politicians lose face, it may also mean that in the end, the UK maintains its close ties with the European Union. While this is an admission that the UK didn't have the upper hand, it ensures economic prosperity across Europe and pulls the UK back from the cliff edge.