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No-deal Brexit could lead to economic cold war with the EU


Bluff was a central feature of British power even when the British empire covered a large part of the globe. A story illustrating this tells of a royal navy captain who was sent with a small ship to the far east to force a defiant local ruler to obey some orders issued by the British authorities.

“What do I do if he refuses to do what I tell him?” the captain asked his superiors before departing. “We don’t have any more ships available, so you’ll just have to turn around and come home again,” was the less than comforting reply.

The captain sailed on his mission and transmitted the British demands to the recalcitrant ruler. “What will happen if I refuse to obey?” he asked. “In that case,” replied the captain menacingly, “I will have no alternative but to carry out the second half of my instructions.”

On that occasion, the British got their way, but it is only great powers that can afford to bluff like this and get away with it. Their bluff is not called because nobody wants to find out the hard way if they mean it. A mistake of Theresa May was to make the vague threat of a no-deal Brexit so central to her strategy and expect this to be taken seriously by Brussels. Most there thought she was bluffing because they believed that Britain would not do anything so economically self-destructive and politically divisive. Boris Johnson is now refurbish the no-deal threat to give it credibility, but this does not change the balance of forces which are, as always, skewed against Britain and in favour of the EU, something the Eurosceptics never seem to understand.

Analysis of a no-deal Brexit frequently lacks realism because the focus is on economics rather than politics. This contradicts the experience of the last three years when the prospect of Britain’s departure from the EU has generated great political destruction, but only limited economic damage for the obvious reason that Britain has yet to leave the EU. A British no-deal departure from the EU would, on the contrary, be opposed by so much of the population that it would produce a political earthquake, widening still further the fault lines within British society that are already gaping wide.

The hard-right cabinet appointed by Johnson implicitly recognises that the divisions within the Conservative are so rancorous as to be a recipe for paralysis if all factions are represented in government. But temporary cohesion achieved by giving almost all ministries to a single faction of the Conservative Party, which itself is a minority in parliament, may well prove more explosive. The fact that the most important decision taken in Britain for eighty years is being taken by such an unrepresentative group delegitimises it from the beginning.

A no-deal Brexit would only be the opening shots of an economic cold war waged against the rest of Europe in a conflict that might go on for years. This is unsurprising because a new feature of conflicts between nation states globally is that economic hostilities are replacing military hostilities, though the degree of confrontation varies vastly from country to country. The conflict between the US and Iran in which President Trump is trying to batter the Iranians into submission by an ever-tightening economic siege is the closest to a shooting war.

US and EU sanctions on Syria are similarly an attempt at economic strangulation. Their purpose according to US special envoy James Jeffery is to “make life as miserable as possible for that flopping cadaver of a regime and let the Russians and Iranians, who made this mess, get out of it”. In practice, it is ordinary Syrians who are expiring because of collapsing living standards and lack of medical attention while the Syrian leadership suffers scarcely at all.

Sanctions and tariffs are central to Trump’s effort to make America great again and it is not an unintelligent strategy. It puts intense pressure on China as America’s great rival, but also on Canada and Mexico. America’s vaunted military superiority failed to win wars in Iraq and Afghanistan leading Trump to avoid similar debacles. In two and a half years he has not started a single military conflict, but he has started a series of trade wars. He understands that the US Treasury has a more impressive record in waging economic warfare than the Pentagon does in fighting hot wars. Sanctions and tariffs, unlike shooting wars, can be switched on and off and are less politically tricky because there are no dead American bodies coming home.

This approach matters to the UK because outside the EU it will inevitably be even more dependent on the US. A sign of this was the highly provocative and dubiously legal seizure by royal marine commandos of the Iranian oil tanker Grace 1 off Gibraltar on 4 July. This predictably led to the Iranian tit-for-tat capture of the British-flagged Stena Impero in the Strait of Hormuz on 19 July. In one of his last statements as foreign secretary, Jeremy Hunt said that Britain was not joining the US policy of “maximum pressure” on Iran, though it seemed to have just done that, and was looking to European states, notably France and Germany, to set up a shipping protection force in the Gulf.

Many are pointing out the irony of the UK looking for EU states to provide naval escorts in the Gulf at the very moment that Johnson is asserting his intention to take Britain “do-or-die” out of the EU on 31 October. A UK decision to openly join – as it already seems to have done covertly – the US-led alliance against Iran would be an early pointer to the emergence of an Anglo-Saxon Trump/Johnson coalition in the Middle East.

Even more important would be the unavoidable reliance of Britain on the US in the event of a no-deal Brexit or a British departure from the EU so ragged and contentious that it would start a long-lasting economic cold war between the two. In such a confrontation, Johnson would look to Trump and Washington not just for a trade deal but for all-embracing political support against the EU.

Brexit in Britain has long ceased to be solely about leaving the EU and has become a vehicle for hard-right wing policies seeking to remodel Britain along lines closer to Trump’s America than the EU. In the event of rivalry with the EU, the UK would look to deregulation and lower taxes for business to attract companies away from the EU states.

Turning Britain into a “Singapore on Thames” sounded zany and impractical when first raised as an option after the referendum, but it is more feasible today – and attractive to much of the present cabinet – in the context of a permanent hostile relationship between Britain and the EU.

From Trump’s point of view, standing with Britain in such an economic cold war would be a way of weaponising the post-Brexit situation to destroy or damage the EU, the world’s largest trading bloc, to which he has always been opposed.

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