Trump’s Brexit wrecking ball

In attempting to torpedo United Kingdom Prime Minister Theresa May’s recently negotiated Brexit deal, President Trump should be careful about that for which he wishes.

May’s failure to secure parliamentary approval for her Brexit deal is almost certain to plunge the U.K. into real political turmoil. That could conceivably even pave the way for a general election and for Jeremy Corbyn, the far-left Labor Party leader, to replace her as prime minister.

{mosads}By heightening political uncertainty, parliamentary rejection is also almost certain to deal a body blow to the U.K. economy, which is the world’s fifth-largest. That could have spillover effects to the rest of the global economy.

At a time that May is already facing an uphill battle to secure parliamentary approval for her Brexit deal in a vote scheduled to take place on Dec. 11, President Trump has chosen to opine on the deal in a manner that has cut the ground from under May’s feet.

He has done so by insisting that approval of her deal would exclude the chances of the U.K. striking a favorable trade agreement with the United States. To rub salt in her wound, he added that the deal was great for Europe, intimating that it was bad for the U.K. 

Even before Trump’s unhelpful comments, May’s chances of securing parliamentary approval looked slim. The Democratic Union Party, her Northern Irish junior coalition partner, have the strongest of objections to the way in which the Irish border issue was addressed in the agreed deal.

What’s more, as many as 90 of her own backbenchers thought that the deal failed to honor the will of the people for a clean Brexit, as expressed in the referendum some two-and-a-half years ago.

A point that stuck in the throat of the backbenchers was that under May’s deal, the U.K. would be locked in a European customs union for at least the next two years without having a seat at the table in setting the rules for that union.

In addition, it would require the acquiescence of its European partners to exit that union, and while in that union, it would not be able to strike separate bilateral trade deals with other countries.

The faintest of hopes that May has of getting her deal through parliament would be to get support from at least some members of the opposition Labor Party. However, this would seem to be a thin reed on which to lean considering that the Labor Party is smelling the opportunity to bring down the May government.

A lively debate is raging in London right now as to what happens should May’s deal be rejected by parliament. In trying to sell her deal, May is warning that if voted down, the U.K. would crash out of Europe by the end of March 2019, when the two-year negotiating period under Article 50 of the Lisbon Treaty terminates. 

In her view, which is shared by many economists, this would cause the severest of disruptions in the U.K.’s European trade that would constitute a major shock to the U.K. economy.

Others who are more sanguine argue that the Europeans would stop the Article 50 negotiating clock to give the U.K. time to reconsider its position. However, almost everyone agrees that May’s failure to secure approval in her deal will lead to a period of considerable political uncertainty.

The range of possible political scenarios being bandied about include May losing a leadership challenge, a second Brexit referendum and a general election that could see Jeremy Corbyn rise to power.

With global financial markets already wobbling because of fears of an escalation in the U.S. trade war with China, one has to wonder what is to be gained by contributing to the destabilization of the U.K. political scene.

By opening a Pandora’s box that could lead to the U.K. crashing out of Europe or to Corbyn becoming prime minister, President Trump may come to regret his unhelpful role in the Brexit process.

Desmond Lachman is a resident fellow at the American Enterprise Institute. He was formerly a deputy director in the International Monetary Fund’s Policy Development and Review Department and the chief emerging market economic strategist at Salomon Smith Barney.