How the New COVID-19 Strain Could Save a U.K.-EU Trade Deal

Largely cut off from the rest of Europe, Brits are getting a hint of the economic and political ramifications of going it alone.

The deadline set by the European Parliament for a trade deal between the U.K. and the EU has officially passed. Despite this, a trade deal is now more likely than it has been in many months. The new strain of COVID-19 that was first detected in the United Kingdom, and which is likely responsible for a dramatic increase in cases in the U.K., has given the British a preview of what, in a worst case scenario, going it alone might actually turn out to be like.

The new strain, while probably not deadlier than the original, is far more contagious. In response the U.K. government is now canceling Christmas for tens of millions of British citizens who live in the newly created “Tier 4” regions. Travel from these regions to other regions is now banned, non-essential shops and service providers such as hairdressers have been forced to close, and no one is to leave home without a reasonable excuse (i.e. work or education). People living in these regions are not allowed to meet other people indoors unless they live with them. 

Many countries all over the world have already banned or severely restricted travel from the U.K. The Eurotunnel that connects the U.K. with France was temporarily closed (as of Tuesday, truckers and travelers trying to cross the border must first clear a rapid COVID test), and as of this writing 11 member states have already announced that they will refuse entry to travelers from the U.K. The EU is expected to issue a union-wide travel ban soon. It is frankly unlikely that this will contain the spread of the new strain, which has already been detected in Italy. It is not unreasonable to think that the travel ban has less to do with stopping the spread than it does with politics. More specifically, the ongoing trade negotiations between the U.K. and the EU.

What does any of this have to do with these negotiations? What we have to understand is that a “no deal” Brexit, in which the U.K. leaves the transition period with no trade deal in place with the EU, was always going to be bad for the British economy, at least in the short term. There is a risk that the new border controls that will be imposed as freedom of trade and movement ends will mean significant delays and perhaps shortages of imported food. 

Imagine if, on top of this, British businesspeople are unable to travel to most of the rest of the OECD, and that businessmen who travel to the U.K. are unable to return (or at least not without a lengthy quarantine period). The months after the retail blitz that comes with the holidays are always slow, but in the event of a no-deal Brexit those months are likely to be even slower than normal. Now that Christmas has effectively been canceled for tens of millions of British consumers, including everyone in London, Christmas is likely to bring fewer profits than normal for retailers, and consequently many may be forced to close their doors in the coming months.

It is difficult to see how any government could survive this. 

Beyond the sheer economics of the situation, the political aspects are if possible even worse. Boris Johnson’s approval ratings have been in a freefall, with his net approval rating hitting negative 24 percent before Christmas was canceled. For context, in February before the pandemic began, his net approval rating was positive 10 percent. What is worse, Johnson’s Conservative party is more popular than Johnson himself. It would not be difficult for any party insiders with their knives out to argue that Johnson is a liability.

Johnson’s problem has been his inability to satisfy almost anyone in the U.K. for the past nine months: There is a significant overlap between hardcore supporters of Brexit and those who oppose lockdowns. These people dislike Johnson because of the lockdowns and restrictions that he has imposed since the pandemic began, and the Christmas lockdowns will not help his popularity.

The fact that the Christmas cancelation was announced so late, after many people had made plans and booked flight and train tickets, and that the announcement came just a few days after Johnson had promised Christmas wouldn’t be canceled, is just adding to his problems. This is the second time in just a few months that the government has announced a lockdown after promising one would not be imposed (the first time was in October).

On the other side, British supporters of the EU, who made up about 20 percent of the Tory vote in the last election, have long been upset over how close Johnson has brought the U.K. to a no-deal Brexit. Johnson campaigned on a slogan of “Get Brexit done”, which appealed even to some Remainers who were exhausted after years of having the Brexit issue dominating the political debate. Whatever else one may say about Brexit, however, it has most definitely not gone away under Johnson’s administration. This group of Remainers is generally more supportive of lockdowns, and they are frustrated by the government waiting too long to impose them and then doing so in what appears to be an inconsistent manner.

There was hope that, with the British economy recovering from COVID-19 in the first quarter of 2021, the effects of a no-deal Brexit might not have been noticed by most voters. Growth was expected to be positive, allowing the government to claim success. If, however, Brits were to be “quarantined” by the rest of the world, this would most definitely complicate matters. Even worse, a poll from last month showed that only half of Britons are certain that they will take the vaccine once it becomes available. The new strain could change that, but if the new strain were to become dominant, vaccination rates would likely have to be higher in order to reach herd immunity. In other words, even with a vaccine being available, it may be some time until enough Brits have been vaccinated that countries will feel it is safe to allow entry to travelers from the U.K.

If Johnson opts for a no-deal Brexit rather than surrender to the demands of the EU, he may very well end up as the second Conservative prime minister to be toppled by his own party after confronting the European Union, even though he won a large majority in the last election. Margaret Thatcher won a strong majority in the 1987 election but was overthrown just a few years later (mostly) due to her hostility towards European integration. The leaders of the EU are perfectly aware of this, and thus have few incentives to make further concessions to secure a trade deal.

Johnson’s best bet right now is likely to request an extension of the transition period, even though he has repeatedly promised not to do so. If the EU were to grant an extension, the U.K. economy might recover enough that the British government could return to the table with a stronger negotiating position than they currently have. However, for precisely that reason the EU is unlikely to agree to an extension; most likely, they will instead point to the trade deal they have offered and tell the Johnson government to take it or leave it. If the U.K. were to request an extension, the EU would likely insist that the extension be for two years rather than, for example, six months. This would give the EU two more years of the U.K financially contributing to the union (which it is bound to do during the transition period), possibly making it worth it for the EU to let Britain “off the hook” for now. 

Furthermore, a two-year extension would postpone the end of the transition period to 2023, less than 18 months away from the next scheduled general election in the U.K. Would the British government, whether led by Johnson or someone else, risk a no deal Brexit so close to an election, given the negative economic consequences that would likely follow in the short term from such a course of action? The EU may well figure that a two-year extension would indirectly lead to the U.K. later signing a trade deal under EU terms, since the government would not be willing to risk letting the transition period expire without a deal being struck.

If the U.K. were to agree to a trade deal under EU terms, there is no doubt that many Brexit voters would feel betrayed. Doing so would mean, among other things, agreeing to a “level playing field” clause that would prevent the U.K. from deregulating in a way that would give the U.K. an advantage over EU businesses. The U.K. would be outside the EU, but would effectively still be forced to obey current EU regulations and possibly also adopt any new ones passed in the future. Since taking back control over regulations and getting rid of red tape was one of the reasons why Britain voted to leave in the first place, this would be a serious concession. It would also mean allowing the EU access to British fishing waters on the same or similar terms to what it has today.

 This would undoubtedly revive the political career and influence of Nigel Farage, who recently renamed his Brexit party “Reform UK”, and who intends to stand in the next election. If Johnson were to be pushed out, he would likely be replaced by the far more popular Secretary of the Treasury Rishi Sunak, a Hindu whose parents immigrated from Africa (his grandparents were born in India). Sunak is not a centrist by any definition, and he has in fact supported Brexit since the very beginning. Nonetheless, the same voters who want the U.K. to leave the EU happen to the same voters who are less likely to support a politician with foreign roots who follows a non-Christian religion. 

The EU ought to consider that strong-arming Britain now while the country is in crisis might very well poison the relationship between the U.K. and the EU for decades to come, and revive the right-wing populism that was part of the reason why the U.K voted to leave in the first place. The best path forward remains a free trade agreement that will respect the sovereignty of both the EU and the U.K.