Ireland should ask Theresa May for a Nissan. Not the car, but a promise that should bad stuff happen to our economy because of Brexit, we will be fully compensated. The UK's new industrial strategy is beginning to take shape. It involves making it up as you go along, don't tell anyone more than you have to (there isn't much to tell), and deny everything that looks against the rules.
The British government promises its electorate that the damage caused by unfettered immigration will be reduced or eliminated. The first step is simply to stop immigration, something that is key to understanding why a hard Brexit now looks probable. It might be a coincidence, but the International Monetary Fund this week produced a detailed study of immigration which concluded: “Migration, no matter how controversial politically, makes sense economically . . . Both high- and low-skilled workers who migrate bring benefits to their new home countries by increasing income per person and living standards.”
So, the first part of Brexit promises to eliminate those benefits.
The next step is an undertaking to open up the rest of the world to free trade with the UK. This is where detail is woefully lacking; how we get from here to there is a complete mystery. But, no matter, once we stop immigration and somehow negotiate free-trade deals with the whole world, including Belgium and its cantankerous Walloons, all will be well.
The practical difficulties standing in the way of implementing all of this are by now well known. The recent problems experienced by the Canada-EU trade deal came at the end of many years of tortuous negotiations, which were nearly scuppered by Wallonia. Brexiteers can hardly complain about the threat to national interests posed by a European federal super-state when one region of a tiny country can clearly wield such power.
Suppose, for a fanciful second, that all of this is possible. Immigration slows to a trickle and free trade with the rest of the planet is implemented overnight. What would happen next? If it all kicked off today, there would be labour shortages, of both skilled and unskilled workers. Polish plumbers, Romanian fruit-pickers and French mathematicians would, presumably, become noticeable by their absence.
Industry will complain; consumers might notice shortages and bottlenecks; wages and inflation will rise. There will be different opinions about whether or not all of this will be a good thing. Next, an awful lot of British industry, mostly manufacturing (such as it is) would move offshore. That’s the point of free trade.
The logical flaw – idiocy might be a better term – at the heart of this approach is that the typical Brexit voter is thought to be the one most hurt by globalisation, the one most affected by free trade.The ones left behind by the elite when the steelworks, mine or shipyard closed have, we are told, cried out in pain.If only they had thought to ask the government of the day for a Nissan. But all the Brexiteers promise these people is more of the same: more free trade, more globalisation and, by direct implication, more jobs disappearing to globalisation. Unless you are Nissan, of course.
Illegal state aid
Nobody can admit to any kind of deal with Nissan. That would be illegal state aid, something that is against EU law. Of course, once you are out of the EU you don’t have any of those laws to obey, so state aid of any kind becomes perfectly okay. You just can’t admit to breaking the law until you change the law in your favour. Until Brexit actually happens, deny everything. After Brexit, start honouring all those secret Nissan-style deals. It’s the perfect postdated cheque, the sort that politicians love as the bill will probably have to be met by somebody else long after you have shuffled off the stage.
In one survey of the auto makers’ industry association, taken before the referendum, 3 per cent of respondents said they were going to vote to leave. Such an overwhelming majority for remaining in the EU was a result of minds being concentrated by the possible effects of a 10 per cent tariff on British car exports, a likely outcome in the absence of those free trade agreements. This was an extra cost that, rather obviously, the export-orientated industry would be unhappy with.
Why is so much attention being paid to the car makers? The auto industry is clearly important, but needs to be kept in context. Output is approaching the peak last seen in 1972 and although employment levels in the industry are a shadow of what they were, the numbers directly and indirectly involved are large. Roughly 150,000 people are currently employed in the UK in the making of cars and auto parts, a significant amount but just 1 per cent of total employment. In the 1970s, roughly half a million people were similarly employed – that huge fall in jobs along with, eventually, increased output is a story about globalisation, technological change and productivity. It is modern economics in a nutshell.
Three-quarters of the cars made are exported, but Britain has a trade deficit in autos. That’s another paradox, illustrating the complexity of global trading relationships.
The UK is making a fetish of manufacturing industry, especially autos. Pure symbolism is part of the story, but I am willing to bet that some bright spark in the British civil service has told the government what Brexit actually means: it has to involve either tariffs (and non-tariff barriers) or full exposure to completely globalised free trade.
Ironically, membership of the EU offers some protection against foreign manufacturers. Free trade or tariffs: either way, British manufacturing is toast. Unless you are Nissan.
