Despite ‘Hard Brexit’, UK will keep trading with EU

Almost seven months since the British electorate unexpectedly voted to leave the European Union, Prime Minister Theresa May has at last signaled what that break-up might look like. 

The pound sterling surged against the euro and U.S. dollar Tuesday morning as the prime minister promised a clean break with the EU.

{mosads}Equally important, May announced that Parliament would have a final say on the Brexit deal.

The prime minister argued that, as the European Union continues its quest for an ever-closer union, it would not make sense for the U.K. to continue obeying EU red lines on Single Market membership.

Instead, the U.K. will pursue a free-trade deal with the bloc, consisting of tariff-free trade and a customs agreement. 

Opponents of Brexit have been skeptical of such a deal, arguing that EU member states will be reluctant to agree to terms and the result of a “Hard Brexit” will devastate the U.K. economy.

However, opposing some form of a free-trade deal with the U.K. would be equally (if not more) devastating to the economies of Europe, as Bank of England Governor Mark Carney recently noted.

Last year, a report by nonpartisan think tank Civitas revealed that the cost of EU tariffs on the U.K. economy would total £5.2 Billion, while the cost to European economies of paying tariffs on exported goods would be £12.9 Billion. 

When considering that the U.K. is the largest buyer of German vehicles, it seems highly unlikely that the largest economy in Europe would reject a tariff-free arrangement with the U.K.

Exiting the single market was one of two significant points highlighted in May’s Brexit speech; the other was a commitment to call a vote in Parliament on the final deal.

This is a very significant point when considering that the majority of the electorate voted to leave the European Union, while around 75 percent of the members in parliament (MPs) in the House of Commons were in favor of remaining in the EU.

If MPs are to reject the democratic mandate put forward by the British people, it could spell political suicide for many of them.

For example, the opposition Labour Party campaigned to remain in the EU, while its constituent base voted overwhelmingly to leave.

Some of the strongest Brexit supporting regions were in the traditional Labour party heartlands, where people felt most distant from European bureaucrats and most affected by the cheap labor supply from Eastern Europe. 

We can expect Scottish MPs to wholeheartedly reject any deal that the prime minister proposes. Almost two thirds of Scottish voters favored remaining in the EU.

There is a strong mandate by Scots to oppose a Brexit deal of any nature.

 It is also important to keep in mind the motivation behind the Brexit vote. Here in the U.S., like the U.K., the media coverage of the Brexit vote placed immigration at the forefront of the debate.

Immigration concerns did, undoubtedly, play a role in the campaign and vote to leave the EU.

However, a poll by Lord Ashcroft Polls on the day of the referendum revealed that 62 percent of voters said their key concern was making sure decisions about the U.K. were being made in the U.K.

In addition, skepticism over ever-expanding EU powers played a role. In other words, this was a vote centered on the question of sovereignty. 

The upshot from the prime minister’s speech Tuesday is quite clear — The U.K. will not pursue Single Market membership nor seek partial or associate membership akin to a Norwegian or Swiss model.

Parliament will have the final say on the Brexit deal. If a punitive deal is offered by the EU, the U.K. will respond by slashing tax rates to attract business, making the U.K. the financial center of business in Europe and a hub of permissionless innovation.

If Parliament is to reject the final Brexit deal, the political landscape of the U.K. will change drastically and indefinitely.

Jack Salmon is a Washington, D.C.-based researcher focused on federal fiscal policy. Salmon holds an M.A. in political economy with specializations in macroeconomics and comparative economic analysis from King’s College London. 

The views expressed by contributors are their own and not the views of The Hill.