Brexit: it's happening exactly as foretold.

Anybody but the SMEs care?

Chris Johns

The Boiled Frog and Bears of Little Brain

Collapse in trade during first month of Brexit: ‘temporary teething troubles’ or trouble ahead?

Ever Given blockage of Suez: a metaphor for Brexit

The UK economy is the slowly boiled frog; small businesses are being sacrificed; UK politicians are the bears with little brains.

The UK left the EU on 31st January 2020. Try asking people if they know that date: you might be surprised how few get it right. They might be confused by the ‘transition period’ that ensued - leaving didn’t actually change anything until January 1st 2021. There is also a widespread view, in the UK at least, that even with the formal end of Transition, nothing much has changed.

For the vast majority of British citizens, there has been no visible impact on their daily lives. Locked down, they have not had to fret about border or passport queues, residence rights in Spain, health insurance for EU holidays, pet passports, mobile phone roaming charges, validity of driving licences or any of the other indignities and hassles that await them when foreign travel resumes.

Talk to a British exporter of fish, cheese or countless other goods subject to ‘Sanitary and Phytosanitary (SPS)’ standards and you will get a very different impression. Talk to any UK-based financial services firm with business in the EU and you will hear a deep sense of unease about what is happening and, especially, what’s coming down the track.

I can already sense your attention wandering. As soon as things like ‘SPS rules and regulations’ are mentioned, eyes understandably glaze over. Also, nobody likes banking fat cats; there is a guilty pleasure in what Churchill called ‘making finance less proud’.

But if you are British you do have a vested interest in what is going on right now and what is coming your way: very little of it will bring you any economic joy. Neighbours, friends, neutrals and not-so-neutrals also need to know what is going to happen: there are risks to be mitigated and advantages to be explored. Perhaps there never will be a full accounting: the sovereignty gained and the control taken back may or may not be deemed to have been worth the economic cost.

We know that Brexit became a cargo cult: the belief in a new era of supernatural blessing thanks to the arrival of, well, something. Perhaps the taking back of sovereignty and control really was enough, even if no tangible benefits have been, or will be, achieved. Those who argued that all the sloganising was just illusion peddling missed the point: the only thing that mattered to believers was the illusion. It was always going to be good enough. The economic pain will be worth it.

So let’s take a look at that pain.

Don’t worry, I’m not going to do a deep dive into the murky - mind numbingly complex - details of the international trading system. Very few know anything - and couldn’t care less - about the differences between the single market and the customs union. Front pages for years now have been full of debate about tariffs, free trade agreements and ‘WTO rules’. Quite a few of those articles were written by people who had only a hazy notion of what those terms actually mean.

But a shallow dive is warranted - it pays dividends in terms of making sense of what has happened already and provides important insight into what is going to happen next.

The international trading system did make headlines in recent days, not because of Brexit but as a result of a large boat getting stuck in the Suez Canal. People in the UK have been mildly surprised to receive emails telling them that delivery of their new kitchen stools and garden benches will be delayed as a direct consequence of the Suez blockage. The story about the container ship Ever Given has lessons for Brexit - and also provides a parable for the times that we live in.

As tech writer Tim Maughan has pointed out, the Ever Given’s escapades provided plenty of fuel for our friends the conspiracy theorists, quite a few of whom have long had the EU in their sights. QAnon nutters suggested the Suez pile-up was a special forces operation designed to free smuggled children trapped in the containers by Hilary Clinton. The truth, of course, was more prosaic, if only a little less startling.

We learned that 12% of world trade passes through the canal. I’ve seen various estimates but it seems around $10bn of goods are shipped every single day. Maughan argues, ‘The global economy is a gigantic sprawling mess, its interlocking mechanisms and networks so complex that its whole has become impossible for human intelligence to comprehend’.

I’d take issue with that word ‘mess’ but it’s a matter of taste. Complex systems are complex: when they work they are things of great beauty, even if comprehension is beyond our little brains. Economists have known for centuries that economies generally, not just the international bits of them, are a tad complicated and very difficult to figure out.

That’s one reason why economists are rarely fans of centrally planned systems: once you give control to people who don’t have the intellectual capacity to understand the power they have been given, trouble awaits. Adam Smith long ago recognised the beauty of the ‘invisible hand’ that guides and resolves the fearsome complexity of a market-based economy. The intricate beauty - or mess, according to taste - of global supply chains is something to be vilified, as Maughan does, or celebrated by those of us who benefit (just about everyone on the planet).

Many people react badly to loss of control. A few of us celebrate it (I would hate to be a central planner); we embrace the chaos and the magic of things like the invisible hand, aware of the trouble caused when too much control is actually given to people with limited brain power. I’m all for Artificial Intelligence, particularly in areas where there is obviously so little intelligence of any kind.

Writers like Maughan are right to note the complexities of global trade but silly to celebrate when things go wrong, like the shutting of the Suez Canal. Such celebrations mimic the joy of the Brexit cultists. We enjoy lives of unbelievable riches (and duration) compared to only a generation or two ago, mostly because of a global trading system that we should cheerfully admit is beyond our understanding. But that desire for control, when we choose to exercise it, inevitably leads to us handing it to people who then abuse it, either wilfully or stupidly: it doesn’t matter which, the effects are the same.

One of the best Brexit commentators around, @chrisgreybrexit, forcefully and correctly points out, in multiple ways, how the desire to ‘take back control’ was founded on several myths. One such was a 19th century perspective on that global trading system. Back then, it was almost entirely about physical goods and whether or not countries put tariffs on physical stuff that flowed across oceans. It’s the difference between a trade agreement and the single market, a distinction beyond the ken of mere politicians.

One of the best Trade journalists is Peter Foster of the FT. His recent piece, here£, details the trials and tribulations individuals are facing trying to get parcels delivered to the UK from anywhere in the EU. It’s a story about presents of chocolates from your mum, hobbyists giving up and small businesses struggling.

These days, tariffs are important, but often less so than the rules and regulations that govern trade - those SPS standards for example. A Victorian politician would look on SPS regulations in the same way as he would view space travel. British politicians too often adopt that Victorian perspective.

Things are much more complicated than that: failure to perceive, let alone understand, those complexities, carries a heavy economic burden. Checks to see that SPS rules have been obeyed are akin to slowing traffic through the Suez Canal. Although these impediments to trade are in fact in The Channel, Dover and the Irish Sea.The only question is how big they are.

So we have been treated to data on the first month trade between the UK and EU that displayed jaw dropping falls in both directions. Goods exports from the UK fell by £5.6bn. Imports fell by £6.6bn. Exports of food and live animals collapsed by 63.6%. One month of data should never attract too much attention but still. Things will settle down but the partial blockages are permanent. Some ships will sail around the obstacle, some won’t bother.

An exemplar of the small business effect is the Cheshire Cheese Company - reported to have stopped exporting to the EU because of a £180 health certificates required per pack of £30 cheese. A cofounder of the business told the Guardian that a government minister advised him to check out alternative export markets.

Boris Johnson and colleagues behaved as if they thought a ‘free trade agreement’ would bring all the benefits of EU membership with none of the costs. They thought that once tariffs were more or less agreed to remain at zero, things, trade wise, would stay the same. Somebody probably did try to explain the complexities of the SPS rules , or perhaps just their existence, but…..those little brains again.

And let’s not get started on services, particularly of the financial kind. Only about 90% of the British economy by the way. SPS rules are not relevant here but the multiple European regulators of banking, insurance and similar industries are all sharpening their pencils, getting ready to gradually tighten the rules against doing EU business in London. This one will run and run.

We are all members of one cult or another. The consequences of worshipping at the Brexit altar have started to be felt. Will they ever wash back over Johnson? We can only hope.

As Chris Grey says, a lot of Brexit has become stale. But the stories emerging about its effects are real and it is important to recognise there is a human dimension to them. Small firms have been especially hard hit…’

That point about small firms is well made. These are the frogs slowly being boiled.