SEPTEMBER 16, 2020

The Brexit negotiations are growing more adversarial with no signs of agreement on key issues. The most likely outcomes are now the hardest and most disruptive Brexit scenarios—leading to further potential weakness for the UK’s currency.

Trade negotiations between the UK and the European Union (EU) were always likely to become more heated as the transition period ended and the final split approached, but UK Prime Minister Boris Johnson has inflamed the situation further. Johnson’s government has proposed a new law that would unilaterally revoke part of the withdrawal agreement, which was only negotiated with the EU last October. The change relates to the Northern Ireland protocol, which covers arrangements for the most vexed problem of Brexit—how to address the UK’s land border with the EU on the island of Ireland.

Amid the ensuing furor, the key question is: What does this mean for the trade negotiations?

Johnson’s Gambit May be Flawed

The rationale for Johnson’s move is not entirely clear, but it has been condemned by critics at home and abroad. While most of this censure is predictable and self-serving, some of it has come from those sympathetic to Johnson’s cause. In fact the domestic backlash has been so great that the government has been forced to compromise and allow Parliament a greater say in triggering the relevant clauses.

Government sources claim the proposed law is a tactic to focus the minds of EU leaders and underline Britain’s willingness to exit the transition phase with no deal, should that prove necessary. But we doubt that an action that damages trust will make a trade deal more likely.

Reaching a trade deal is likely to be hard enough anyway, with little evidence that UK and EU trade negotiators have managed to bridge key differences on state aid and fishing rights. And time is running short. Many commentators still assume that some sort of deal will be reached, largely because they think that it’s in the economic interests of both sides. But this type of thinking has been a very poor guide to Brexit outcomes so far and minimizes the importance of ideological differences on both sides. Moreover, as the uproar over the Northern Ireland protocol demonstrates, signing international agreements for short-term gain can create lasting problems.