Teething Problems in the UK

When we talk about the UK these days, at least from the American perspective, we’re focused on the new hyper-infectious strain of the coronavirus and whether the new AstraZeneca vaccine will offer a viable additional alternative to contain the pandemic. We know that wild-haired UK PM Boris Johnson recovered from a nasty CV-19 infection, and we know that infection rates in his neck of the woods have skyrocketed… Nothing compared with the United States, but little in the way of good news. As vital and relevant as that may be, both to UK residents and those of us here in the United States worried about this mutation, the headlines in Britain these days are much more focused on a now fully-operational Brexit autonomy. And since the UK is a mega-billion-dollar trading partner with the United States, so should we. Johnson pulled off a last-minute trade compromise with the European Union, but perhaps it was not so perfectly fleshed out.

UK companies are now facing new cross-border restrictions, documentation and customs practices. While the Irish/Northern Irish (the latter is UK) border has its own set of vastly more lax rules, the heavy traffic between continental Europe and the UK has not gone that smoothly. Picture trucks and ships stalled with bureaucratic compliance issues and questions, literally unfamiliar with the new required “health checks” and custom’s inspections. The Jill Lawless, writing for the January 4th Associated Press, provides this snapshot: “One month after Britain made a New Year split from the European Union’s economic embrace, businesses that once traded freely are getting used to frustrating checks, delays and red tape.

“British meat exporters say shipments have rotted in trucks awaiting European health checks. Scottish fishermen have protested at Parliament over the catch they can no longer sell to the continent because of complex new paperwork… The manufacturers’ organization Make UK said Monday that 60% of manufacturing companies have experienced ‘significant disruption’ since Jan. 1… The British government says the troubles are ‘teething problems,’ but companies say they are causing serious pain.”

That 60% is a rather large number, but either the companies are exaggerating their issues or the UK government is busy painting a rosy version of event through statistical manipulation or simply the dissemination of fake news. Or simply friendly anecdotal assistance: “‘A teething problem is something that will go away eventually,’ said Alan Russell, who runs plant retailer Trees Online. New customs rules and health checks have prompted him to stop shipping to the EU and to Northern Ireland, which is part of the U.K. but remains in the bloc’s economic orbit because it shares a border with EU member Ireland… ‘It’s 5 or 10% of my business I have just lost overnight,” Russell said. ‘I’m used to a little bit of unpredictability … but this is without doubt the most severe and unpredictable event that I can’t do anything about.’

“Britain left the EU politically a year ago and quit the bloc’s single market and customs union at the end of 2020. A post-Brexit U.K.-EU trade deal means goods can still move without tariffs or quotas, but businesses face new costs, paperwork and barriers. Though many firms prepared as best they could, details of the new arrangements were not nailed down until the trade deal was sealed Dec. 24, just over a week before it took effect.

“The British government is accentuating the positive. U.K. supermarkets have not run short of food, in part due to businesses stockpiling against uncertainty caused by Brexit and the pandemic. Traffic jams have not piled up at English Channel ports, and the government says its ‘reasonable worst-case scenario’ of 7,000-truck-long lines is now unlikely.

“Cross-channel traffic is flowing relatively smoothly, with less than 5% of trucks being turned back because drivers lack paperwork, the government says. Business groups say that’s because some companies are simply staying away. The flow of goods is only about three-quarters of its January 2020 level, and Make UK says many firms have ‘put a hold on importing and exporting from the EU in a hope that things improve.’” Lawless.

But even at the open Irish/N Irish border, there have been changes. It becomes clear that when the EU prioritizes essential supplies, the UK is no longer automatically part of that priority. “An open Irish border, free of checks on goods or people, has played a major role in building peace in the region. The sensitivity of the issue was underscored last week, when the EU threatened to ban shipments of COVID-19 vaccines to Northern Ireland as part of moves to shore up the bloc’s supply. That would have drawn a hard border on the island of Ireland — exactly the scenario the Brexit deal was crafted to avoid. British, Irish and Northern Ireland politicians all expressed alarm at the plan, and the EU dropped the idea.

“U.K. business groups say firms need more support to overcome post-Brexit hurdles. Make UK urged the British government and the EU to simplify customs paperwork and to cut ‘rules of origin’ red tape that has left businesses struggling to prove their goods are British and thus eligible for tariff-free trade.” Lawless. Of course, British politicians play up the new opportunities for the UK to make its own favorable trade agreements with the rest of the world. Like shoring up a new trade agreement with the Pacific Bloc ($152 billion trading reality) or the United States ($140 billion). One tiny catch, these markets still represent only a fraction of the $920 billion a year in trade between the U.K. and the EU.

Economists were projecting a Brexit-driven economic contraction for both the EU and the UK long before the pandemic. The pandemic may bury some of those negative statistics, but even the more optimistic projections suggest that the decline, and hence any true going forward growth, will take years to develop. Does the dollar retain relative strength? Does that make US exports more expensive and invite Americans to spend more on now cheaper European/UK goods? Will the dollar decline as we address our COVID nightmare?  Stay tuned, but as unknowable the future impact of Brexit may be, there will be a significant economic repercussion here in the United States.

I’m Peter Dekom, and while we struggle with our own political and economic instability, a transition to a Biden alternate reality, the rest of the world will just keep creating its own set of problems… for everyone.