Thread by @TerryBarker_1

#Brexitcast This thread is about the consequences for the UK economy if Johnson get his Free Trade Agreement. It may be quite long!

#Brexitcast
This is where I am coming from

#Brexitcast This thread looks to what might happen if Johnson wins an outright majority in the Commons, with his MPs all committed to his Brexit Withdrawal Agreement (WA). It examines the prospects for a Free Trade Agreement with the EU (EU-FTA) and its consequences for the UK.

1/ #Brexitcast #BBCElection #ConservativeManifesto #LabourManifesto #LibDems
*Post-Brexit Britain: Johnson gets an EU-FTA deal*
his thread assesses the economic consequences for the long-term UK economy of the Conservative Party's Manifesto & the PM's campaign remarks on Brexit:

2/ #Brexitcast *Brexit has already damaged the economy*
Brexit looks as though it has already inflicted serious damage on the economy. The Financial Times (Fig. 1) shows how the UK GDP has lagged behind those of the USA and the Eurozone since the 2016 Referendum.

3/ #Brexitcast In particular, The Financial Times (Figure 2) also shows how business investment has stagnated, seriously damaging long-term prospects for the economy.

4/ #Brexitcast However, it is simplistic to attribute all the differences in growth and investment between the UK and its competitors to the anticipation of Brexit. Many other events and factors are relevant for this relatively poor performance....

5/ #Brexitcast We should turn to the analyses that use official & other models of macroeconomic behaviour, to tease out the different effects, incl. Brexit. This requires assumptions about governments’ policies, world oil prices, etc & a range of scenarios as to what might happen

6/ #Brexitcast *Johnson’s Withdrawal Agreement (WA)*
Prime Minister Johnson has negotiated a short-term 11-month deal to December 2020, the WA. Astonishingly, the details of the Agreement reveal that it divides the UK’s internal Customs Union & Single Market into two.

6/ #Brexitcast This creates a trade barrier down the Irish Sea, something Prime Minister May refused to do to preserve the Union. It is an extraordinary, retrograde & possibly unprecedented development for a modern economy. No sensible Gov't would do this to its economy.

7/ #Brexitcast However, the long-term outlook remains very uncertain. A Free Trade Agreement with the EU is a clear possibility depending on the outcome of the December 2019 election. If an EU-FTA proves impossible to negotiate in the 11 months proposed, a chaotic no-deal beckons

8/ #Brexitcast *The economic effects of Johnson’s Withdrawal Agreement from econometric models*
The effects of Johnson’s deal have been assessed by the NIESR in their October forecast: most of the GDP cost occurs in the first 2 years of the FTA, 2021 & 2022.

9/ #Brexitcast The @Niesr estimates that the long-term cost is about 3.5% of GDP (Fig. 3). The projections by @hmtreasury & the @OBR_UK paint a similar picture with long-term growth hardly affected by the deal.

10/ #Brexitcast The main problem with these projections (& there are others) is that they are based on neoclassical theory, with its assumptions of representative agents, general equilibrium, constant returns to scale, etc., which bias the results. Assumptions for tractability.

11/ #Brexitcast E.g. the effects @OBR_UK report on long-term growth may be optimistic, influenced by the "return to equilibrium" in its model & its assumption that the long-term growth of productivity is largely unaffected by the Brexit-induced reduction in international trade.

12/ #Brexitcast The econometric evidence suggests otherwise.

In what follows, assume the EU-FTA is negotiated in a few months rather than years, and later FTAs with the USA and China take 5-8 years as normal. What does such an EU-FTA mean for the British economy over the 2020s?

13/ #Brexitcast UK’s international trade
Starting with some facts on the UK’s international trade, Fig. 4 shows where our exports go to, and where our imports come from, divided into goods (the top two panels) and services.

14/ #Brexitcast Fig. 4: The shares are by value & the totals for all exports roughly equal those for all imports, because the UK needs exports to pay for the imports. The picture is complicated by capital flows, but by & large if there is a long-term fall in export values, £⬇️

15/ #Brexitcast With Brexit, the £ will depreciate & eventually exports will rise, imports will fall, & balance will be restored. Within each category, there is substantial and growing 2-way (intra-industry) trade, & this feature is evident even as the categories narrow.

16/ #Brexitcast Such specialisation is particularly in manufacturing. This is the supply-chain phenomenon and it is a crucial feature on modern industry. The European Single Market has fostered and encouraged these chains over the last 40 years.

17/ #Brexitcast It is the sudden breaking of the supply-chains that is a major risk in a no-deal Brexit. Fig. 4 shows that about 44% of all UK goods exports (including manufactures), and about 40% of UK services, are to the rest of the EU. It is these that are mainly affected.

18/ #Brexitcast However, overall, compared to most other EU countries, the UK clearly specializes in exports of services. Service exports from the UK to the rest of the EU are *very much at risk*, since there are no tariffs on services so a FTA is not much better than no-deal.

19/ #Brexitcast *Prospects after an EU-FTA*
Despite Gov't claims, an EU-FTA is not an opportunity for increasing trade relative to EU Membership: it risks a “race to the bottom” in terms of weakening standards for food hygiene, human & animal health, and environmental standards.

20/ #Brexitcast Compare the strong safeguards provided by the EU, with those of the USA: e.g. higher food standards in the EU -> less food poisonings per head c/f USA.

21/ #Brexitcast In expert opinion, “Many businesses would find adapting to a new FTA just as troublesome as if the UK had crashed out without a deal.” Sam Lowe, Centre for European Reform, 5 November 2019. to be continued ...

22/ #Brexitcast #BBCelection Lowe goes on “At its most expansive, an FTA between the EU & UK could remove tariffs & quotas on all goods traded between the 2 territories. However, fully tariff & quota-free trade will be dependent on the UK complying with EU-level-playing-field..."

23/ #Brexitcast "...demands on state aid, the environment and labour rights that go beyond what the EU would normally ask of an FTA partner.” The reason for this is the Brexit threat of a loosening/changing of regulations in order to secure later FTAs with the USA or China.

24/ #Brexitcast Thus an EU-FTA (esp. one negotiated under time pressure with a more powerful & experienced team) may require the UK to abide by EU regulations in areas such as pharmaceuticals, food & agriculture, which will then preclude the UK making a wide-ranging a USA-FTA.

25/ #Brexitcast The UK will be forced indefinitely to adopt EU reg.s with no direct say in their generation/governance, a similar “vassal state” to that claimed for “Brexit In Name Only” (BINO), the much better option of staying in the Single Market & Customs Union after Brexit.

26/ #Brexitcast *Prospects for service exports after an EU-FTA* However, an EU-FTA is likely to have a much more damaging effect on UK long-term incomes & employment that just more form-filling. The UK is “services-oriented” in its international trade.

27/ #Brexitcast The UK exports far more services to the EU than it imports from the EU (open Fig.4, repeated here)

28/ #Brexitcast Regulations & standards are especially important for services, and an FTA will not protect UK exporters from new discrimination due to local EU regulations. Fig. 5 shows how much important non-tariff barriers have become for the EU.

25/ #Brexitcast Fig. 6 shows the substantial restrictions of services trade from “Most Favoured Nations” (MFNs) than for services trade with other EU Member States. As a third country, the UK would be one of those MFNs and face these greater restrictions on its service exports.

26/ #Brexitcast E.g. Fig. 7 shows how exports of legal services for MFN countries are seriously disadvantaged in many EU states. 40% UK service exports are to rest-of-EU & Brexit will increasingly make them unviable as 3rd-country restrictions are imposed via local EU suppliers.

27/ #Brexitcast *Conclusion: cave-in or betrayal?*
In conclusion, if Johnson’s plans for UK international trade work out on the most favourable assumptions, then the long-term outlook for the economy looks dire, unless there is agreement to all the EU’s requirements....

28/ #Brexitcast Maybe that is what Johnson has in mind, but if so he will have completely betrayed his Brexit followers. In this, of course, he has form – just listen to NI’s DUP. Without another Johnson cave-in, the EU-FTA will not be much better than the no-deal Brexit.
/end