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Brexit complexities boil down to ‘economy, stupid’

Not all Brits take gravity for granted.

The pull of the Earth’s force is the same in London as in Albuquerque, of course, but a key to understanding the messy Brexit process is to see it as a rejection of the laws of economic gravity. More than three years after British voters narrowly decided to quit the European Union, the divorce has been delayed, challenged in court, the source of constitutional crisis and destroyer of dozens of political careers. This is, in part, a result of the difficulty in coming to terms with the trade-offs of quitting of the EU.

Unlike gravity, EU membership is not inevitable. But extracting itself from the EU, which the UK joined in 1973, is not as simple as the binary choice of “leave” or “remain” put to voters back in 2016. Within the bloc, goods, services, citizens and capital move freely in a market of 28 countries with more than 500 million people. Untangling the British economy from this system and rewriting the rules on trade, in particular, will be complex and costly.

This is where gravity comes in. As a member, the EU determines the terms of trade on behalf of all members. Brexit supporters say that freeing the country from the burdens of EU membership will allow it to sign lucrative trade deals with faster-growing economies like the United States, China and others. The thing is, these countries are all far away.

Despite globalization and advances in technology, distance remains one of the strongest determinants of trade between countries. This “gravity model” of trade is one of the most reliable relationships in macroeconomics. It’s why New Mexico trades a lot more with Mexico than Canada, while the reverse is true for Minnesota.

Around half of the UK’s trade – both exports and imports – is with the largely frictionless single market of the EU. As a result, the inevitable barriers to trading with the bloc that result after Brexit will put a big dent in the British economy. According to almost every credible forecast, including the government’s own, the UK economy will be worse off a decade after Brexit, even under the rosiest assumptions.

So what? In polls of Brits who voted to leave, the two most popular reasons were greater sovereignty and control over immigration. Remain voters cited fears about the economy above all else. The economic impact of Brexit is routinely downplayed by Brexiteers in the government as unpatriotic fearmongering. Parallels with Republicans criticizing Democrats “rooting for recession” are obvious.

Prime minister Boris Johnson has urged people to ignore “the doubters, the doomsters, the gloomsters” and embrace “a new optimism” about the opportunities of Brexit. And the risks? His policy on Brexit’s trade-offs, he said, is “having our cake and eating it.”

Surveys suggest the British public is still roughly split 50-50 if another Brexit vote was held today. Notably, polls show equal shares of Brexit-supporting voters now think the economy will be worse off as better off, down from a two-to-one disparity in favor of optimism a year ago. Over time, sovereignty has risen even more in importance as the primary rationale for Brexit among supporters.

Pro-Brexit leaders continue to present the UK’s impending divorce from the EU, with a transitional deal or not, as a largely costless decision. Even if they don’t believe this, a significant share of voters think the costs are worth it, or not enough to matter more than other, better things. When Brits soon return to the polls, in another Brexit referendum or a general election in the aftermath of the divorce, the power of positive thinking could trump cold calculations in pounds and pence. That would be a rejection of another law long taken for granted: “It’s the economy, stupid.”

Jason Karaian graduated from the Albuquerque Academy and studied economics at Northwestern University

 

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