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Is the global trade system breaking down or just in hiatus?
THOSE of us who have always thought that Brexit - Britain's withdrawal from the European Union - was a bad idea should be feeling self-satisfied and vindicated now. Well, we are not; at least this observer isn't. The reason is obvious. Many of the things that we feared would happen have happened, or might still. Worse, the consequences aren't confined to the United Kingdom.
If you take a crude and unscientific survey of some of Washington's major think tanks, you discover (no surprise) that they are generally agreed that the economic outlook for Britain is grim. Here's a commentary by economist Desmond Lachman of the right-of-centre American Enterprise Institute:
"Since the Brexit referendum, the UK's economic performance has deteriorated. It has done so as the UK's future access to the European single market, which buys around 50 per cent of the UK's exports, has come into serious question. … At a time that the European economy is already stuttering, with Italy in recession and the German economy on the cusp of recession, the last thing that Europe now needs is a sclerotic UK economy."
A new study from the Peterson Institute for International Economics reviewed the forecasts of 12 economic models and found that only two of them predicted gains from Brexit. Other studies forecast losses up to 8 per cent of gross domestic product (GDP). The study also warns that "a no-deal crash out" - a reversion to higher tariffs rather than a "soft Brexit" of continuing the present no-tariff situation - "would have serious negative short-run impacts on the UK, which are essentially impossible to model".
Although EU countries would also lose some exports to the UK, these are much smaller than the UK's export losses to the EU. Thus, they are more easily made up by boosting exports to other countries, the report contends.
The UK's losses are not just theoretical. Already, some companies are announcing closures of UK manufacturing operations, a good example being Honda. Similarly, some banks are moving financial assets (stocks, bonds, other securities) from their London offices to locations on the continent. There is much fear that London will lose its traditional position as Europe's pre-eminent financial centre.
Meanwhile, the chaos, confusion and contradictions of Parliament's efforts to find a tenable Brexit policy must seriously undermine confidence in Britain's political system and its ability to attract future investors, domestic and foreign.
The prevailing political anarchy was on public display last week. On March 12, Parliament rejected Prime Minister Theresa May's proposed agreement with the EU for the second time. Then on March 13, it voted down a proposal for the UK to leave the EU without an agreement, failing to acknowledge "that this is precisely what will happen unless they reconcile themselves to the very deal they rejected the day before", as Douglas Rediker of The Brookings Institution noted in a blog post. The deadline for deciding is March 29, though that could be extended.
The larger and more significant issue floating over this controversy involves the future of the world trading system. There has been a loss of authority among the corporate executives, governmental officials and economists whose support is crucial if the system is to survive and flourish.
It's not that they have changed their minds about the value of open trade so much as the public has turned more sceptical and hostile to trade expansion. A less supportive public in turn alters the political climate, making governments more nationalistic and leading to more, not fewer, trade barriers. Multinational firms become more cautious in making new investments, because they can't know how much open trade will be tolerated.
BREAK FROM PAST
Brexit is one example of this break from the past. Others are well-known: the Trump administration's renegotiation of the North American Free Trade Agreement (NAFTA) with Canada and Mexico; its bargaining with China over trade practices; and the imposition of US tariffs on steel and aluminium imports.
The fate of Brexit is just a small part of this much larger story. Is the post-World War II global trading system, constructed gradually over the past half-century or so, breaking down? Or is it just in a state of temporary hiatus? History awaits an answer. THE WASHINGTON POST WRITERS GROUP