So I was wrong predicting that there would be no Brexit deal.
Good.
A deal was found on Christmas eve and while both sides, Britain and the European Union, may have lost, the British loss seems bigger.
The 1256 pages of the deal are mostly about trade in goods, not about trade in services. While there will be no tariffs and quotas on goods there will be new bureaucratic measures imposed on goods exports:
In announcing the trade deal this week, Prime Minister Boris Johnson of Britain acknowledged it offered “not as much” access for financial firms “as we would have liked.” But he was not as straightforward about the difficulties facing even British retailers under the deal, analysts said.
In promising that there were “no non-tariff barriers” to selling goods after Brexit, he ignored the tens of millions of customs declarations, health assessments and other checks that businesses will now be responsible for.
The declaration issues will take a few months to sort out. Border queues can be expected in the first few weeks. Sensational reporting about them will follow. But the queues will soon make place for more routine patterns. Trade in goods will then revive to previous levels.
But services like banking, insurance, and legal advice will have more difficulties. Adherence to British rules will no longer be sufficient to be recognized as legit within the EU. Service companies will have to adhere to local rules of other EU countries to do business with them. It is here where Britain is most likely to lose business:
On services, by quitting the single market, it was made clear during the negotiations that the U.K. lost some market access for trade in financial services. This is still the case since there is no provision for the sector in the agreement. More than 40 percent of the U.K.’s exports to the EU are services, and the sector accounts for around 80 percent of the U.K.’s economic activity.
A look at recent British trade balance data shows why that will matter:
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Britain has an overall trade deficit in goods and a trade surplus in services. While the deficit in goods is expected to stay in the current range the surplus in services will probably shrink. The above numbers are for all British imports and exports. The numbers for Britain's trade with the EU are even more unbalanced:
[The deal] leaves financial firms without the biggest benefit of European Union membership: the ability to easily offer services to clients across the region from a single base. This has long allowed a bank in London to provide loans to a business in Venice, or trade bonds for a company in Madrid.
That loss is especially painful for Britain, which ran a surplus of £18 billion, or $24 billion, on trade in financial and other services with the European Union in 2019, but a deficit of £97 billion, or $129 billion, on trade in goods.
“The result of the deal is that the European Union retains all of its current advantages in trading, particularly with goods, and the U.K. loses all of its current advantages in the trade for services,” said Tom Kibasi, the former director of the Institute for Public Policy Research, a research institute. “The outcome of this trade negotiation is precisely what happens with most trade deals: The larger party gets what it wants and the smaller party rolls over.”
The British trade balance with the EU as well as its global trade balance are now likely to worsen. That will put pressure on the British pound. As Britain has a sovereign currency it can devalue it. But that is likely to increase the import prices for goods, especially food, and hit its people in their pockets.
But that will be a slow process and by then few will make the connection.
I have always seen the whole Brexit idea as something born out of British nostalgy for its lost empire. Ironically the result seems to have put it even further away from that once mighty status.