Time for a new trading strategy?
As we begin to emerge from the COVID-19 restrictions, minds inevitably turn to restoring trading to a semblance of normality. Our trade with the UK will not, however, return to what we have long considered normal.
We sell approximately €34 billion worth of goods and services to the UK annually and import approximately €30 billion in return. Today, it appears that the UK Government is determined to proceed with its planned separation from the EU at the end of this year, whether a deal is agreed with the EU or not.
Time will tell if this serves the UK. It certainly seems short-sighted to abruptly discard very effective arrangements with its largest trading partner. It may, of course, simply be a negotiating stance – but one European leaders seem determined to dismiss. More than one European leader has made it clear that in their view, Britain would have to “live with” the consequences of Brexit, as Mrs Merkel rather pointedly put it.
Meanwhile, back in the UK, things seem to be moving on. The general population seems, if one follows a recent survey by the Guardian newspaper, more inclined to seek an extension, allowing more time for a deal to be done. But that message hasn’t reached Government, where everyone seems to be hunting for the nearest and earliest possible exit. Notably, the opposition doesn’t seem too inclined to make any last-ditch attempt to change that view in any meaningful way.
So, what does that mean for an Irish business? As regards Brexit, it looks like our fears of a very shaky series of trade arrangements with the UK may replace the current seamless relationship. Of course, politics will wend its windy way and that may change things, but it looks more likely than ever that not much will be agreed by Christmas. The impact of that will be felt sector by sector. As an example, 30 June 2020 was the planned date for the exchange of a full assessment of the financial services regulatory regimes in Europe and the UK. This date passed without the data requirements being met by the UK, which means that the continuation of existing cross-border arrangements with the City of London is less and less likely and will ultimately impact the broader sector. We will likely see the same uncertainty re-emerge in other sectors in the months ahead.
And what of COVID-19? What consequences does that have for us as a (relatively) small, open economy? Two scenarios beckon. In the first, the UK, Ireland and the rest of the world – or at least the countries we trade energetically with – will enjoy a V-shaped recovery from the “Great Interruption”. The second is that we, the UK and many more will suffer from a resurgence of the virus – the so-called “second wave” of infections. This will be akin to a re-run of the 2009-10 recession, albeit with an entirely different cause and, potentially, consequences. In the former, Brexit is a headache and, for some businesses, a potentially devastating one. In the latter, we face a much more generalised slowdown. On top of that, as the emerging decisions on Ireland’s status as a travel ‘partner’ for European countries have shown, the rest of the EU will not necessarily and spontaneously act in a way that suits our strategy. The confluence of the pandemic, geography and economic recession may mean that we are about to enter the most challenging period, economically speaking, of our long process of disentangling from the UK.
The answer? In both cases, and in the short-term: a robust stimulus package to encourage recovery. The Government should not delay in implementing as-large-as-possible a package of measures to support challenged business in dealing with both COVID-19 and Brexit. We should lean heavily on the EU in this regard – the departure of the UK is as significant an event for the EU as the reunification of Germany, and budget needs to be made available to manage the process.
The EU needs to ensure that impacts are substantially absorbed as a collective exercise, but all of that is really about recovery. For Irish businesses, the first challenge is to survive both Brexit and COVID-19. The next is to take on something we should have done before now: to diversify our trading partnerships, both within and outside the EU, so we are no longer dependent on the UK for almost 20% of our trading activity.
This article first appeared in Briefly a weekly eNewsletter from Accountancy Ireland on the 6th July 2020.