Brexit in a changing world

Anand Menon and Joël Reland argue that geopolitical tensions make the UK’s choices post-Brexit increasingly difficult, even when it comes to regulatory divergence. 

Six years ago – doesn’t time fly? – the UK formally left the European Union. Four years of bitter debate about sovereignty and immigration, about regulatory autonomy and financial contributions, culminated in a Trade and Cooperation Agreement that introduced numerous barriers to trade.

The intention was that leaving the EU would allow the UK, as Boris Johnson put it in typically lyrical style, to ‘take off its Clark Kent spectacles and leap into the phone booth and emerge with its cloak flowing as the supercharged champion, of the right of the populations of the earth to buy and sell freely among each other’. An independent Britain was going to carry the torch for free trade, and it was going to do this secure in the knowledge that it was safe in the warm security embrace of the special relationship.

And then the world changed. Globalisation went into reverse, a consequence of the pandemic, increasing distrust of China and a growing wave of populist protectionist sentiment not dissimilar to that which had driven Brexit. Soon after, war broke out in Ukraine and our worst fears about the militant nationalism in the Kremlin were confirmed. And then came President Trump.

Brexit now looks and feels very different to Brexit then. Achieving the vision of a buccaneering free trading Britain will be so much harder – if not impossible  – in a world where tariffs and subsidies have become the norm. As continental-sized economies shield themselves from the outside world through the erection of trade barriers, so the UK has had to deal not only with tariffs imposed by its closest trading partners but also their increasing tendency to emphasise economic self-sufficiency over a presumption that global free trade is the best policy.

This clearly has implications for the UK-EU relationship. For one thing, the kind of thinking that led Johnson to eschew any kind of defence and foreign policy relationship with Brussels now seems ill-judged at best. With a war raging in Europe, with the reliability of the US security guarantee lower than it has arguably ever been, the need for UK-EU cooperation in security and defence is much reinforced. Keir Starmer has sought to address this oversight with the Security and Defence Pact signed at the UK-EU summit last year. Ultimately, however, Europeans, including the EU, will need to confront difficult choices as to the reliability of NATO and nature and scope of any putative alternative.

Such discussion will be made all the more difficult as the EU places increased emphasis on its ‘strategic autonomy.’ As a consequence, the UK will have to fight harder to gain access to the kinds of joint military procurement initiatives Brussels is undertaking. The fate of attempts to secure UK participation in the EU’s SAFE programme was a case in point. A desire to ensure that EU based firms were the main beneficiaries led to Brussels placing a prohibitive price tag on UK participation which ultimately brought the negotiations to an end.

Yet the impact of the changing geostrategic context goes far beyond the areas of foreign and security policy. Eurosceptics have long fretted about what they claimed were the unnecessary regulatory burdens placed on the UK by the EU. For them, Brexit would allow more ‘agile’ regulation at home, which in turn would attract waves of investment and innovation – making the UK a hub for tech, artificial intelligence and financial services.

Keir Stamer has, to a striking extent, albeit sotto voce, clung to parts of this vision. His Brexit pragmatism has seen him initiate a process of greater alignment with the EU in key goods sectors – like agrifoods and electricity – where we are deeply bound to the continent, while diverging in areas like tech and financial services.

The UK has moved closer to the US position by delaying the introduction of new global banking rules and reducing regulatory oversight of short-selling. It has also done very little to investigate potential acts of market abuse by US big tech – whereas the EU’s energetic approach has drawn accusations of discrimination and threats of trade retaliation from Washington.

This approach makes sense, up to a point. These are areas where the UK might hope to attract the kind of inward investment that the precautionary approach of the EU discourages. And that was fine in a world where the western alliance remained just that. Now, however, things look more binary.

Keir Starmer’s ability to pursue the trade deals so central to the UK’s post-Brexit strategy is now deeply affected by the mercurial US President. Trump has criticised, for instance, the Prime Minister’s trip to Beijing. On top of which, European allies, increasingly talking in terms of reducing reliance on Washington, are keenly watching the choices made in London. Whether they see us as a good ally or a potential liability might come to hinge on how they perceive our positioning relative to them and the US.

And this applies in a practical sense to choices we make. On the one hand, the EU will need access to the deep capital pools in the City of London to make good on its ambitious pledges to rearm. But if wide regulatory divergences emerge, then what? Equally, defence and technology are intimately entwined. Much defence equipment is based on AI. Again, regulatory divergence has real geopolitical significance.

Keen though we may be to have our proverbial cake and eat it – to cleave to the US while ‘resetting’ links with the EU – growing transatlantic tensions make this approach less tenable than it once was. Even when it comes to the regulatory politics, hard geostrategic choices might impose themselves.

By Anand Menon, Director, UK in a Changing Europe and Joël Reland, Senior Researcher, UK in a Changing Europe.