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Wednesday, June 29, 2016

How Brexit Will End Up Hurting Donald Trump

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How Brexit Will End Up Hurting Donald Trump

Brexit will remove Trump’s ability to play the ignorance card on free trade to its full effect.

Brexit will expose Donald Trump’s war on free trade as both hollow and ill-advised. Evoking the spirit of Brexit in a speech on Tuesday, which condemned U.S. trade deals, Trump noted that Britain’s decision to leave the European Union was a good thing and could serve as a model for the US pulling out of its own free trade pacts, like NAFTA. But far from being a boon for the presumptive Republican nominee, Brexit will in all likelihood show voters in the U.S. the dangers of what can happen if a country is ripped out of a free trade pact on a whim: volatility and chaos.
In the United Kingdom, growing concern inside both the Remain and Leave camps has, for better or worse, reminded the British public how important international trade is for the island nation’s economy—indeed, for any nation’s economy in the 21st century. Britain’s post-Brexit experience in the coming months will bring this point home to American voters as Trump battles the pro-trade wing of his party over his war on free trade.
The initial market turmoil over Brexit seems to have finally subsided. The Dow Jones Industrial average jumped 269 points in Tuesday’s trading, erasing a good bit of the 900 points it had lost since the Brexit vote. The market will continue to be somewhat choppy until we know definitively what the UK’s place will be in the EU now that its voters have elected to leave. Will it choose to totally cut off ties with the EU or will it pursue a more moderate path?
President Obama and German Chancellor Angela Merkel have both said that the UK’s future in the club would probably mirror that of Norway, where the country retains the bulk of the economic benefits of the union without any of the political power. This is great for Europe as it will enable the rest of the EU to engage in further political integration, which is necessary to stabilize the euro, of which 18 of the current 28 members currently use as their primary currency. Things like a common banking union and a common fiscal policy will finally move to stabilize the euro, which has been hampered with problems ever since 2010, when Greece almost defaulted on its debts, requiring a huge bailout from its fellow eurozone partners to the north.
Turmoil in Greece and in the eurozone in general led UK Prime Minister David Cameron to call for a referendum on exiting the EU in the first place. When he made the announcement, it looked as if the EU was teetering on the brink of collapse, with default fears spreading from the periphery to core eurozone members, namely Italy. Distancing his country from the financial follies on the continent made sense at the time. But once Mario Draghi, the head of the European Central Bank, promised world markets that he would do “whatever it takes” to defend the euro (i.e. print as much money as needed to make sure no eurozone country defaulted on its debts), fears over a collapse of the eurozone, and the European Union, subsided.
It was clear that Prime Minister Cameron had overreacted, but instead of admitting his mistake and backtracking on his call for an “in or out” referendum on his country’s membership in the EU, he decided to go forward. He believed that since the EU had stabilized, the UK would vote overwhelmingly to stay.
But then came ISIS, the migrant crisis of 2015, Donald Trump, and the rise of the far right across Europe. Nigel Farage, the head of the far-right UK Independence Party (known colloquially as UKip in Britain) became the voice of the Leave campaign in a bid to legitimize himself and his party in the eyes of the British people. He successfully conflated his party’s anti-immigration and isolationist rhetoric with that of independence. Farage shifted the purpose of the referendum from economic preservation to political isolation.
The Remain campaign continued as if voters would be making their decision based on economic analysis, but they instead voted based on emotional rhetoric and false promises. Farage assured those voting to leave that the UK would be able to enjoy all the benefits of trade without the negatives of increased immigration and regulation. While the UK will almost certainly be able to negotiate a deal to keep most of its trade advantages with the EU, it will not be able to totally reject EU regulations or EU citizens from coming in and out of their country. This fact has been reiterated by almost every major leader in the EU. Despite what Farage said on Wednesday morning to the European Parliament, the UK will be forced to give EU citizens preferential immigration in some form if they want the same trade access that they had before the referendum.
Calls to totally cut the UK off from the EU are now being echoed by members of UKip as a way to ensure that the UK can truly “control” its borders. It is this sort of rhetoric that has made the markets so nervous in the last few days. A complete break would have devastating consequences for Britain’s economy as its goods are barely competitive now. Additional tariffs would only make matters worse.
Farage and his crew now have to deliver on the promises they made during the Leave campaign, but they can’t do it without sending the UK economy down a sinkhole. Soon enough, the people will see that Farage made promises he couldn’t keep and that the UK will need to compromise their independence to avoid severe economic pain.
This ordeal will play out over the next few months – every fit and start will be followed by editorials talking about the “End of the UK” or the “End of the EU.” Unfortunately, such fear mongering will only make markets more volatile and amplify Brexit remorse.
Thanks to Brexit, U.S. voters will be able to see firsthand what happens when a country ducks out of a major trade agreement and tries to renegotiate a new one under false pretenses with no plan for implementation—uncertainty, market turmoil, and economic degradation.
The UK isn’t doomed. It can come out of this situation in a strong position. But promises that leaving the EU would somehow restore uneconomic or uncompetitive industries or stop immigrants from entering the country will be proven false. The longer it takes for the far right and the British government to realize this, the more damage will be inflicted on the British economy, which will in turn cause increased volatility in the global markets, especially on Wall Street.
For U.S. workers, most of whom have their savings locked up in some pension plan connected to the markets, Brexit’s aftermath will hit home. They will experience the negative consequences after a country recklessly leaves a major trade agreement without a realistic plan to get out.
This is not good for Donald Trump or his fantastical plan to yank the U.S. out of the North American Free Trade Agreement (NAFTA). Like Nigel Farage, Trump speaks in generalities when he attacks trade, with no clear plan to renegotiate deals to improve the lives of Americans. He simply states that NAFTA is a disaster and tries to link it to illegal immigration and the demise of uncompetitive industries, like the steel sector, which, of course, has nothing to do with NAFTA.
Brexit has taken away Trump’s ability to play the ignorance card to its full effect, and it could vastly diminish his chances in the general election.


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