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Post Brexit, a More Nimble Britain May Prove Useful to Asia

Author(s): Andrew Sheng

Date: Apr 18, 2017

Theme(s): Finance & Macroeconomics

Publications: Opinions & Speeches

Distinguished Fellow Andrew Sheng thinks Brexit may provide good opportunities for countries willing to seize the day.

Being in London when UK Prime Minister Theresa May formally triggered Article 50 in filing for divorce from the European Union was bitter-sweet. The mood was one of determination – Great Britain has decided to leave, and there is no looking back.

The debate in London was very much on whether there will be a soft, easy Brexit, in which the divorce is reasonably amicable, or a hard, acrimonious Brexit, in which there will be no winners. Most realists know that you cannot have a divorce and still stay in the same house. My British friends’ views ranged from “depressingly tough negotiations” to “stiff upper lip and get on with it”.

But all divorces come down to emotions, and dollars and sense. As emotions cool down and negotiations begin, the costs to both sides become rather contentious. The leading European think tank Bruegel put the calculations as “divorce”, where each party shares the assets and liabilities, or “leaving the club,” where the leaver pays up all dues and does not share in any assets or liabilities. On either basis, the cost to the UK could be in the range of 25 billion (HK$206 billion) to 60 billion.

But the true costs to both sides are actually unknown, because all forecasts so far turned out to be wrong. The UK economy did not collapse or face higher inflation or slower growth, but instead seemed to be doing slightly better, with a recovery of exports as the sterling depreciated. Like any divorce, the winner is the party that gets on with life, makes the mental adjustments to learn from past mistakes, makes new friends and seeks new careers direction.

By being part of Europe in terms of geographic proximity, but not a member of the euro zone, Britain has never fully signed onto the European dream. Having a separate currency has cushioned Britain from the worst defects of a single currency, the way the southern European countries and Ireland are suffering deflation without the flexibility of adjusting through the exchange rate.

In the short term, Europeans have managed to get over the shock of Brexit with a stronger sense of unity. Over the medium term, the strains between the net savers in the North, led by Germany, and the net borrowers in the South, will show.

From Asia’s perspective, Brexit has opened up new policy options in terms of trade, investments and geopolitical initiatives. By leaving the EU, Britain must survive by dealing with her own fundamental problems of labor productivity and overall competitiveness. The City of London will surely suffer somewhat from the loss of the euro clearing business, as these shift back to either Frankfurt or Paris, but it will be decades before either city manages to get the legal, financial and commercial skills that exist in London.

To put it simply, Britain will always remain an offshore center in the right time zone that bridges the American and the European continents. Being offshore and having probably the least ideological diplomatic skills, Britain will be able to move more nimbly than either the American exceptionalists and the more bureaucratic European coalition. In a world where Donald Trump is pushing for “America first” and Europe will be more preoccupied with internal issues and border tensions, Britain will become a champion of free trade and globalization.

With still some of the best universities in the world, Britain must attract global talent in order to compete. In short, surviving in a hi-tech world depends not only on financial capital, but also brains and the ability to execute projects without being bogged down by too much complex red tape.

In short, British soft power in terms of intellectual leadership in thinking through how to navigate global tensions in geopolitics could be Britain’s trump card.

Asia will find that working with Britain will offer an alternative option to trade negotiations with the US or the EU. If negotiations with Britain succeed faster in driving Asians to move towards say, the Regional Comprehensive Economic Partnership, this could open up avenues not thought possible after the demise of the Trans-Pacific Partnership. Asians who are frustrated with negotiating with Brussels or Washington will find a sympathetic ear in London. Of course, Britain will need to balance its interests with that of both sides of the Atlantic, but that has always been Britain’s strong suit.

To paraphrase Jim Hacker, the hapless minister in the hit TV series Yes, Minister, the British banger will once more be freed from being defined by EU bureaucratic definitions of fat content with no taste. Soon, the British banger will be served with samosas, dim sum, French fries or Thai sauces, to new hybrid tastes.

After a shambolic struggle for Conservative Party leadership, May seems to have found her calling in taking Britain to a new direction, thanks partly to a Labour Opposition that is still stuck mentally in 1970s.

I left London this spring not depressed by Brexit, but with a sense of new hope.

This article first appeared in the South China Morning Post on April 14, 2017. The views expressed in the reports featured are the author’s own and do not necessarily reflect Asia Global Institute’s editorial policy.