A speech by British Prime Minister Theresa May on Tuesday answered the biggest outstanding question about the United Kingdom’s impending departure from the European Union: It will not try to stay in the bloc’s single market. Instead, May explained, her government will push for a comprehensive free trade agreement with the European Union, emphasizing that regaining control of immigration policy would take precedence over remaining a member of the market. But while her speech clarified some questions about the Brexit process and the United Kingdom’s future course, it left several major issues unaddressed.
The Cost of a Free Trade Deal
In her speech, May highlighted two themes: sovereignty and national unity. She characterized the Brexit as a means by which the United Kingdom can recover its sovereignty, especially over immigration (one of the hottest topics of the referendum campaign) but also over trade and legislation. She said the Brexit will enable the country to reduce immigration, restore the full sovereignty of Parliament, and re-establish the supremacy of British courts and judges. But, she said, to achieve those ends, the United Kingdom must leave the single market, an area in which people, goods, services and capital move freely, and sign a “comprehensive, bold and ambitious free trade agreement” with the European Union.
By leaving the single market, the United Kingdom would gain the ability to negotiate as many free trade agreements as it wants while including as many economic sectors in those deals as it desires. May indicated that, in addition to pursuing a deal with the European Union, her government would also seek to strike trade agreements with the United States, China, India, Brazil and Australia, among others. But there are downsides to that strategy: Free trade agreements usually take years to negotiate and are becoming increasingly difficult to ratify.
This post was published at FinancialSense on 01/18/2017.