Exporters are wise to start preparing for a hard Brexit | Financial Times

Exporters are wise to start preparing for a hard Brexit

David Davis was kidding himself when he told European politicians they were powerless to prevent Britain extracting a good trade deal  D...

David Davis was kidding himself when he told European politicians they were powerless to prevent Britain extracting a good trade deal
David Davis, secretary of state for exiting the European Union
 David Davis, secretary of state for exiting the European Union, addresses journalists in Brussels as negotiations get under way. Photograph: Stephanie Lecocq/EPA
The investment plans of Jaguar Land Rover are unlikely to be an isolated reaction to Brexit. Last week the carmaker revealed amid a fanfare of publicity that it would be hiring 5,000 extra engineers and, with less fanfare, that it would begin work on its next-generation electric car in Austria.
Very simply, the company appears to have made a judgment that for the next two to three years the pound will remain low and, with this discount in place on its exports, it will profit from shifting a huge volume of diesel cars from factories in the West Midlands and Merseyside to the rest of the world.
But the post-2020 years will be dominated by sales of electric cars, and for that Brexit poses too many risks.
The rhetoric from the car industry has become more strident as the opening of negotiations has neared and last year’s vague promises from business secretary Greg Clark of help and support have faded from memory.
Mike Hawes, the boss of the carmakers’ lobbying organisation, said last week that without the promise from Theresa May of interim arrangements to fall back on when talks on a deal conclude in 2019, firms would look overseas for expansion, not to the UK.
Hawes has long argued for a deal that keeps tariffs low and regulations in harmony to favour trade. The difference between his comments in the past week and those just a few months ago was the tone. It was all high anxiety, where once there was dead calm.
Already the anecdotal evidence of scrapped investments in the UK are piling up. City investment managers say their clients are increasingly twitchy about what David Davis, the UK’s chief negotiator, can achieve against the brick wall of intransigence built by EU leaders.
It doesn’t matter to exporters that Nigel Farage says that a hard Brexit is for the birds, after the election and a hung parliament. A hard Brexit is still the logical outcome of the UK’s position that free movement of labour and the jurisdiction of the European court of justice must end in Calais.
The opening skirmishes over the right of EU citizens to remain in the UK and on what terms have shown how tough Angela Merkel and other EU leaders intend to be as they stand behind Michel Barnier and his team to preserve the integrity of the union, and the single market in particular.
The former Greek finance minister Yanis Varoufakis gives a disturbing account of his negotiations in Brussels following the country’s debt crisis. Greece was obviously in a worse position than the UK, and therefore a weaker negotiating partner. Still, his experience is relevant. He warns that EU negotiators will happily drown meetings in swaths of data and a determination to focus on details when the resolution of a particular problem is within their grasp.
So it wasn’t surprising that the Belgian prime minister and others described May’s proposals as vague. It is almost the default position of any senior EU-supporting politician.
Even dyed-in-the-wool europhiles can recognise that the EU’s reaction to the 2008 crash and its aftermath showed that democracy plays second fiddle to the survival of the union.
In his book Adults in the Room: My Battle with Europe’s Deep Establishment, Varoufakis relates how the German finance minister Wolfgang Schäuble welcomed him to his first meeting with the words: “It is my mandate against yours.” Schäuble, according to Varoufakis, “was honouring a long EU tradition of neglecting democratic mandates in the name of respecting them”.
Germany’s tight-fisted finance chief, feted as one of the architects of German reunification, and reviled in equal measure as the chief enslaver of Greece in perpetuity, may be shuffled to one side in a new Merkel government after elections this year. But the EU will continue to sing the same song, especially now that May’s mandate is that much weaker.
And that is what British and international companies based in the UK are waking up to. They themselves spend billions of pounds each year lobbying in Brussels to gain an advantage against outside competition. If they didn’t, Europe would be deluged with cheap goods from the far east while its huge trade surplus with the US would be much diminished.
Estimates that the German car companies would lose 60,000 or 80,000 jobs in the event of a hard Brexit and the return of tariffs to Anglo-German trade might be close to the truth, but they miss the point. Business leaders from Warsaw to Stockholm, and Madrid to Dublin, are well aware that Brussels believes in Brussels first and foremost, and the advantages to them of this stance are many.
Davis was always kidding himself as he toured Europe before the talks, telling local politicians that they were powerless to prevent Britain extracting a beneficial trade deal because they were in hock to big business. If Bavarian politicians were being dictated to, it was not by BMW, it was by the Brussels elite.
Yes, Barnier et al were nervous last year when Italy’s Five Star Movement and Spain’s Podemos were poised to wreak Ukip-style havoc with their own exit plans. But that time has passed, leaving Brussels free to bury Davis in details – and any hopes of a soft Brexit with it.
Wade Green - Financial Analyst

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Financial Times: Exporters are wise to start preparing for a hard Brexit
Exporters are wise to start preparing for a hard Brexit
Financial Times
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