Wednesday, 9 November 2016

What might Trump's election mean for Brexit?

There are obviously many connections between Trump’s victory and the Brexit vote, some of which I have already written about and which I will not discuss here. Instead, I want to outline some preliminary thoughts about how the result might impact on Brexit. That is difficult, because Trump is an unpredictable figure, and little credence can be attached to his various statements.

One immediate issue may be the sterling-dollar exchange rate, although so far it seems as if any flight from the dollar is affecting the yen more than the pound, which recorded only a slight uptick today. This actually reflects the ongoing bad news of Brexit: sterling is not seen as a ‘safe haven’ currency any more. Still, the coming weeks may see some gains for the pound against the dollar and that would have some impact on post-Brexit inflation, especially as oil is priced in dollars.

The wider implication may be to make a UK-US trade deal more likely, as excited Brexiters are already proclaiming. Trump presumably spells the end of TTIP, and in his campaign he made noises about a willingness to sign a deal with the UK, and indicated an approval of Brexit, to the extent of referring to himself as ‘Mr Brexit’ and repeatedly drawing comparisons between his campaign and Brexit. However, he has also signalled a strong desire to only do deals which are ‘good for America’. Given that the UK will be desperate to sign a deal, any deal, one can only anticipate that any UK-USA FTA would be heavily loaded against the UK. In any case, no FTA could be created until the UK has left the EU, and even then only in certain circumstances, depending on the terms of Brexit.

At the same time, we can expect deteriorating relations between the US and the EU, both as regards TTIP and more widely. The UK government might think that this could re-ignite the ‘special relationship’, although there are significant foreign policy differences over Syria, Iran and, especially, Russia. Indeed, the most significant issue is likely to be NATO and its response to Russia. Trump has indicated a lack of enthusiasm for NATO and especially for members who do not spend 2% of GDP on defence. Key here are the Baltic States, where only Estonia meets the 2% criteria.

There is some complex and very dangerous geo-political territory here. It is not inconceivable that Trump’s election will embolden Russian military incursions into Ukraine and soft power incursions into the Balkans. It’s no accident that the Russian Parliament applauded the result. The nightmare scenario is military action in the Baltic States (or, if not military, then political and economic). Brexit exacerbates these dangers because it also contributes to the weakening of the US-EU-NATO nexus and, more generally, the post-war international order. But this also creates the possibility of an international crisis so severe that the UK government might seek (more or less willingly) to defer, or even abandon, Brexit. That, of course, would be an extremely dangerous situation and any ‘gain’ as regards Brexit would be more than offset by the calamity it would involve. So it is not that I am hoping for such a situation, just saying that because Trump’s election throws the geo-political chips in the air, the way that they settle may have an impact on Brexit.

On a lighter note, the report that Nigel Farage might be appointed by Trump as the US Ambassador to the EU was, I think, a joke (one can only hope so; though in this strange world who can say). That is about the only joke I can see in the present situation. With the UK and, now, the US having embarked on an unpredictable course of national populism – and the possibility of other countries doing the same – both those countries and the free world have entered a period of confusion and danger unprecedented in my lifetime.

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