One key Brexit claim has always been that Britain will get a good deal out of Brexit negotiations because big countries like Germany won’t want to sacrifice trade with the UK.
The UK is easily Germany’s best export market: it had a $56 billion trade surplus with the UK last year (i.e. the value of exports minus imports). That’s almost a third of Germany’s trade surplus with the EU.
So why would they want to sacrifice that surplus in order to give the UK a bloody nose for leaving the EU – Brexiters argue.
During the Referendum campaign for example, Boris Johnson said it would be “insane” for Germany to put up trade tariffs against the UK.
But the claim is rubbish, as one German economist pointed out on Twitter today.
1 A little tweetstorm on Germany's #Brexit position and economic ties between GER & UK to follow. Not for faint-hearted among Brexiteers.
— Christian Odendahl (@COdendahl) November 1, 2016
This is what he went on to say
Münchau asks: “Do you honestly think #GER would sacrifice a 56bn trade surplus with UK for anything as lofty as a principled position?”
First, a surplus is really not that interesting: car exporter to UK does not care if other parts of the economy do not import as much.
And even in negotiations, it does not matter: the econ goal is not a trade surplus, but to maximise consumption, investment, prod. growth.
If the UK threatens to bloc EU imports, UK consumers will suffer as much/more (ie the main source of growth in UK over last 3 years).
Second, lets have a look at what kind of exports go from Germany to the UK (in % of total GER exports to the UK).
Most is high-end manufacturing, the type that is less price sensitive. So the pain/downside for GER exporters will be manageable.
Don’t take it from me. Take it from the exporters themselves who argued for a tough stance vis-a-vis the UK.
“The UK is important market for GER car ind, but cohesion of EU27 & single market more important for us.” Wissman, chief GER car lobbyist.
Hold on, isn’t GER that geo-economic power that builds econ ties and lets its export interests dictate its foreign policy? Not so fast.
GER does focus on econ of geopolitics if 1) GER is not key to that geopol issue, and/or 2) if it’s not at core of GER geopol interests.
China is good example, where GER does not take the lead, but focuses on its econ interests on the back of/free-riding on US geopol work.
So what is the core of Germany’s core geopolitical interests? That’s right, the EU.
Russia threatened the EU’s security, and Germany pushed for sanctions (despite strong GER commercial interests & domestic resistance).
Brexit in Germany’s view is geopolitical vandalism, and GER core interest is now to strengthen Europe and the EU.
Main partner of #Germany in Europe is France (even more so now than before). So GER will keep French interests at top of its list.
In sum when it comes to Germany’s core geopolitical interests, like the stability of the EU, commercial interests take a back seat.
The full tweet storm is here. Christian Odendahl is chief economist at the Centre for European Reform.
So the Brexiters claim that Britain will do fine during EU trade negotiations is based on an entirely flawed premise.
But that shouldn’t come as a surprise really