The Southsea bubble: brexit edition

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I joked before about how when the brexiters talk the talk aboutexciting” trade deals “in emerging markets” they don’t say where are these mysterious new markets. Timbuktu? Peru? El Salvador?….Well actually yes. The brexiters think that they can substitute trade with the largest single economy in the world, for trade with Latin America. Things I’ll say in jest, they’ll say with a straight face. Humour and satire are again being outrun by facts.

So, what’s wrong with this idea? Well firstly the South American economy is worth only about a quarter of that of the EU economy. And while the UK literally has a pipeline to the EU, via the channel tunnel, Latin America is the other side of the world…and on the other side of the inter-tropical convergence zone (if you’re a nervous flyer, you don’t want to fly to south America, it gets pretty choppy).

And while you’ll come out of the channel tunnel onto either a high speed railway line or an eight lane motorway, the transport infrastructure down south isn’t that developed. The roads away from major cities aren’t great and there are large gaps in the network, the unfortunate consequence of living on a continent with vast jungles, massive rivers, high mountains and uncontacted tribes (who’d sooner eat Boris Johnson than buy a Dyson vacuum cleaner off him!).

In short its a bonkers suggestion. Even more bonkers when you realise the UK already HAS a number of trade deals with Latin American countries, with other deals being negotiated via the EU. Deals the UK will lose upon leaving.

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I mean what are we going to sell them? Given that the Tories have been principally trying to re-assure farmers, one assumes they mean beef. Well, you do realise that Argentina is beef country? Order a steak in Argentina, you get a massive steak that’s half the side of a cow (for a fraction of the price you’d pay in the UK), and no sides (and they don’t exactly do vegetarian food out there btw!). So I don’t see how British farmers could compete. And as they’d be looking to export meat to the UK, this would flood the UK market and bankrupt UK farmers. Plus, given the presence of foot and mouth disease, the UK would risk losing its disease free status, meaning it would lose access to the European and north American markets.

Should I be accused of saying south American’s don’t eat their greens, they do, but its more fruit and salads. Brazil also has large sugar cane and grain growing plantations. I don’t see how the UK could compete and it would inevitably be the losers in any such deal. Plus a number of south American countries are somewhat paranoid about their agricultural production and might be reluctant to allow UK imports, as they would worry about diseases being brought in, threatening a vital industry. Its illegal to bring fruit (or in some cases grains of any kind) into a number of south American countries (they search bags at customs and they will fine you if they find some much as an apple core). And speaking of fruit, Argentina and Chile both have a large wine industry. Do the brexiters seriously think English wine (what the French call “du vin roast beef”) is going to compete against that?

But what about cars or planes? Well given that a number of car and plane manufacturers are now threatening to leave the UK, that might be a moot point soon. But since we’re talking about, Brazil, Mexico and Argentina have their own car industries (Mexico and Brazil’s each manufacture more cars than the UK).

As a European traveller down south you’ll notice how a lot of their cars (Clio’s, Golf’s Megane’s, etc.) all seem to be a generation or two behind the ones back in Europe. I assume the car manufacturers are moving equipment from Europe down there, allowing them to get a bit more revenue out of model before its retired. And as they’ll have worked out any issues with the car back in Europe, they can build them cheaply in Latin America (quite apart from the lower labour costs). Again, there ain’t no way UK based manufacturers could compete (and as they will no longer comply with EU emission standards and safety requirements, we can’t sell them or even drive them on European roads).

The luxury end of the car industry is dominated by US or Asian brands (Lexus, Cadillac, etc.) so that’s going to be a difficult one to break into and it likely won’t go down well in Washington, where it will be seen as trying to eat America’s lunch.

As for aircraft, Brazil is home to Embraer, the world’s third largest aircraft manufacturer. More famous for small regional jets, they’ve recently begun to branch into medium sized jets. While I can see a few UK airlines buy the odd plane off them….well not that we’ll have many airlines left, most are already registered in the EU (even BA!). But either way, the UK is unlikely to see any real gains.

One feature of south America you do notice is how the contrasts between rich and poor are fairly stark. The poor are very poor and the rich are very rich. Hence why if you hang around the posher parts of Buenos Aires or Rio, you’ll be paying London prices, and that’s the cheap places! There’s also a certain level of social apartheid in south America. This is a part of the world where boys from the favelas can literally get picked up by the cops (or shot!) for just walking down the street in a posh part of town. South America had the misfortune to be where a number of right wing thinkers, in collaboration with various military dictatorships, were allowed to run various social and economic experiments. And needless to say, the results haven’t been pretty.

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That said, the vast bulk of people in this part of the world, while not poor (nor are they rude rich snobs), they ain’t exactly rolling in money. The sort of high value expensive stuff the UK would be looking to sell they won’t want to buy and they can get something similar locally (or made in China) for a fraction of the UK price. So in short, there’s pretty much no way any of the trade the UK will lose post-brexit with the EU can be made up in Latin America. Indeed, given the loss of Latin American trade deals post-brexit (once existing trade deals are lost upon brexit), its questionable whether any of the trade the UK already has with the region can be recovered quickly.

Another consideration is that while many South American countries have free trade agreements with each other and freedom of movement, its not as all encompassing as it is in the EU. In fact it wouldn’t be far removed from the “bespoke” trade deals May often talks about. And the end result is that if you try to go across any border in South America, there’s generally going to be a queue (and a delay of a few hours), as there will be customs and passport checks of some form or another. Its inevitable that the same will happen at Dover and in Northern Ireland, particularly if the UK starts signing trade deals with third parties (such as the US) which aren’t compatible with EU rules.

However, there is one sector of the south American economy where the UK could potentially see a market for its wares – financial services, which they can sell to the many nouveau riche in the region (social apartheid? Our kind of people! you know we used to do great business with the ones committing actual apartheid?). I mean seriously, the Tories have never in their history cared about factory workers , farmers or fishermen. Do you honestly think they’ve gone through some sort of road to Damascus conversion?

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No, instead when they boast about how “we” can get “exciting” new trade deals, they are talking into a mirror. The “we” refers to them and their boarding school chums in the city. The plebs in the factories and fields are snookered. But that’s hardly the Tories problem. After all, why do you think the likes of Farage and Aaron Banks wanted brexit in the first place? (so they could bet against the pound and make a killing from its collapse in value after the brexit vote).

However if this is the plan, its a crap plan. Latin America is not exactly the most politically, nor economically, stable part of the world. Those right wing social and economic experiments I mentioned? Let’s just say that there was a certain level of what the CIA would refer to as “blowback. As we speak Argentina might be about to go bankrupt (again!). In Brazil there’s strikes and unrest, with talk of martial law and military dictatorship. And Venezuela? Don’t ask! Tying the UK’s economic fate to that of south and central America doesn’t exactly sound like a brilliant plan.

Oh, and there’s the small matter of those Islands in the South Atlantic that the UK is occupying, which tends to get up the noses of the locals a bit. I suspect any sort of a trade deal might involve them being jettisoned.

Its also important to remember that the Tories will place their ideology above the well-being of the country. As I pointed out in a prior post, the privatisation of the UK’s railways wasn’t undertaken in a way that would be most likely to succeed and produce an efficient service. It was undertaken in a way that would be as difficult for a future labour government to unpick as possible. That this would destroy British railways long term or cost the government more than it saved was of little concern (they don’t use the train, that’s what the Jag is for!). So to is it with brexit.

Students protesting against Brexit in front of House of Parliament

The brexiters are all to aware that demographics are against them. That once the older generation who voted leave have all died off, the odds are the younger generation who voted remain (or were denied the chance to vote at all) will simply vote to rejoin the EU (indeed recent polling suggests public opinion is already turning against them). So a critical goal of the brexiters is thus to achieve “a clean break”, which is code word for a brexit that as difficult as possible to reverse, even if its detrimental to the UK.

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In short, what the brexiters propose is a re-run of the south sea bubble. That bubble grew out a false claim that a UK company had been granted a monopoly on trade in South America (in truth they had permission to send exactly one ship a year!….to trade in slaves!). This was then blown out of all proportion by speculators, not unlike the very spiv types behind brexit, who then buggered off and left an awful mess for a future government to clean up, which bankrupted many in the UK. When you forget the lessons of history….

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4 thoughts on “The Southsea bubble: brexit edition

  1. Pingback: The brexit red flags you might have missed | daryanblog

  2. Pingback: Post-brexit trade delusions: Africa edition | daryanblog

  3. Pingback: Salzburg and the sound of brexit madness | daryanblog

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