LONDON – Immediately after his December election victory, British Prime Minister Boris Johnson declared his principle domestic policy objective to be the rebalancing of Britain’s economy, “leveling up” those parts of the United Kingdom that have been left behind financially. On Monday, speaking in the Baroque splendor of the National Maritime Museum in Greenwich, he set out his prime foreign policy goal: making Britain a global “superman” in championing free trade.
These are both reasonable goals. Johnson’s government was voted into power to deliver them, backed by a strange mixture of working class former Labour voters and older Conservative Brexiters who want a swashbuckling U.K. unencumbered by ties to the European Union. The problem, as Johnson dives into trade negotiations with Brussels, is that keeping one of these constituencies happy may involve disappointing the other.
If he’s to hold this new Conservative coalition together, Johnson will need to deliver economic benefits to the former Labour heartlands in England’s industrial north. And if he’s to deliver the global Britain promised by Brexiters after quitting the EU, he’ll have to be free to strike trade agreements with countries around the world.
There’s a strong moral case for a domestic agenda that tries to rebalance the U.K. economy away from the dominance of finance. It may be a prerequisite for fixing Britain’s weak productivity and providing better growth prospects. Johnson has a point on free trade too. “[It] is being choked, and that is no fault of the people, that is no fault of individual consumers,” he said. “I’m afraid it is the politicians who are failing to lead, the mercantilists are everywhere, the protectionists are gaining ground.”
Yet the flaws in Johnson’s effort to keep all sides of his support base happy were there in his speech on Monday, probably the most important of his career. Johnson insisted that the U.K. cannot sign up to the EU’s “level playing field” provisions — which guarantee broad alignment between the U.K. and Europe on rules and regulations governing policy areas from social policy to environmental policy, tax and state aid. But without that undertaking, the EU says it cannot give Britain the zero-tariff, zero-quota arrangement on goods that it wants.
Johnson won’t want to be seen to capitulate on the level playing field, because it wouldn’t tally with a newly sovereign Britain free to go where it likes on global trade — instead, the U.K. would be a “rule-taker” from Brussels. Johnson has begun talking of an Australian-style deal if the Canada-type trade arrangement he wants isn’t possible. Australia doesn’t have a free trade deal with the EU, so this is largely a euphemism for moving to World Trade Organization terms — or a “no deal” split from the EU trading partnership to put it more bluntly, perhaps with some side deals in important sectors.
Unfortunately for Johnson, the further Britain moves away from its current zero-tariff, zero-quota arrangement on goods with the EU, the more pain it might inflict on those northern England regions that voted for him. Even Canada has to pay tariffs on poultry, meat and eggs, and respect quotas. The U.K. Treasury estimated that a Canada-style free trade agreement would mean a hit of 4.9 percent of GDP growth; a WTO arrangement would no doubt be worse. And not all parts of the U.K. economy are equally exposed to these new trade costs. The areas that will be hardest hit by new trade frictions with the EU are the very places that he’s trying to “level-up.”
Of course, Johnson’s speech — and the negotiating proposals put forward by the EU’s Michel Barnier at the same time — are just the opening gambits of the mother of all trade negotiations. Much could change as the clock ticks down to the deadline at the end of this year. The EU might give way on some level-playing field provisions, in exchange for continued access to British fishing waters. The EU proposals also hold out Gibraltar as a bargaining chip.
To achieve both his domestic and foreign policy objectives Johnson’s biggest post-Brexit bet must be proved right: that while the EU may be the larger negotiating partner, Britain’s geopolitical clout, closeness with the United States and geographical proximity gives it similar weight. He also seems to be gambling that whatever the economic damage from a more distant trading relationship with the EU, it will be gradual and spread over time and can be mitigated by extra spending on hard-pressed regions.
Relief that Britain’s endless Brexit debate is over, a strong parliamentary majority and a prime minister who manages to make retreat sound like a bold charge, might buy Johnson time. But he will inevitably have to concede that, as the giant trading bloc on Britain’s doorstep, the EU will remain influential. He may want to be a trading superman, but Brussels still has plenty of Kryptonite.
Therese Raphael writes editorials on European politics and economics for Bloomberg.
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