Could Trump break Brexit?
Donald Trump is a huge fan of Brexit. But could his triumph be the biggest threat to Brexit’s success? Or could he be the lifeline that the British government needs as it tries to make a success of Brexit?
It is too early to know exactly what Trump will do in office. It is even harder to put predict the consequences these will have for international trade. However Trump has made some promises the central plank of his campaign and voters will be expecting him to deliver. One of these promises poses a huge threat to Brexit.
Trump’s threat to International Trade
Trump made a clear commitment to restore blue-collar jobs and living standards by reforming international trade. For decades America has been a strong promoter of free trade and globalisation. Following the protectionism of the 1930s, the Great Depression and the Second World War, America has promoted global free trade as a way to strengthen its international allies and increase its own wealth.
The election of Trump could change that at a stroke. Many Americans believe his claim that international trade deals are to blame for the decline of American manufacturing and coal production. These deals have opened much of the US market to global competition. They have made it easier for other countries to export their goods to the US market. With their low wage rates, these countries’ goods have priced much of America’s own industry out of the market and made it uncompetitive.
So Trump’s America will be less keen and perhaps even hostile to free trade. This is even more likely now that the Republicans have retained control of both Congress and Senate.
What is the impact on Brexit Britain?
Britain is still grappling with exactly what form of Brexit it will seek. However there is one thing which is absolutely clear. Britain wants to drive economic growth through international trade after Brexit. British PM Theresa May has spoken of Britain becoming “the global leader in free trade”.
The reason for this is obvious. As a result of Brexit, Britain could lose access to all or part of the EU’s Single Market of half a billion consumers – see here for the background. Some studies predict that the UK could have to increase trade with the Rest of the World by almost 40% to offset reduced European trade.
How could Trump impact International trade?
Trump’s victory could make it much harder for Britain to increase international trade for two reasons. Firstly the US could increase trade barriers to its own market, which will make it harder for Britain or anyone else to increase trade to the US. The US is almost 25% of the world’s economy, so Britain would have to increase trade even more elsewhere to make up any trade decrease with Europe.
But there is another, potentially even greater impact. If the US increases barriers to its own market, it is likely that other countries will retaliate and follow suit as history demonstrates. Leaders around the world may appease their own electorates by talking tough on trade. Raising tariffs can also strengthen their negotiating position in trade talks.
So where does this leave Brexit?
America and other countries could start raising trade barriers just when Britain needs to increase international trade. This is clearly a major risk for Brexit. How British politicians deal with this remains to be seen. This will all take years to resolve – remember Britain will not even leave the EU until early 2019.
There are so many unanswered questions. What policies will Trump actually implement on free trade? How quickly will they take effect? How will other countries react? Could Britain be given a favourable trade deal by the US? How will this impact Brexit negotiations between Britain and the EU, which have not even started yet?
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