Episode 2: Brexited! (with Jeffry Frieden and Christina Davis)

It was a momentous day for the UK. The United Kingdom finally exited the European Union on January 31, 2020. So what happens next, and should we care? Our guests both demystify the impact of Brexit and explain the purpose of the European Union in ways you have never understood it before.

Image of Jeffry Frieden and Christina Davis laughing


[VIEW TRANSCRIPT]

We know that British passports are turning from burgundy back to traditional blue, and the Union Jack was taken down from the European Council building in Brussels. But what of the trade tensions around curvy bananas and chickens rinsed in chlorine? Will trade agreements become more or less complicated as the UK goes it alone in a globalized world?

Christina Davis and Jeff Frieden, professors of government and Weatherhead Center Faculty Associates from Harvard University, dive into a wide-ranging and fascinating discussion about the many ripple effects of Brexit. 

Somewhat philosophical and deeply intriguing is the premise around the European Union itself, which requires giving up certain aspects of sovereignty for a stake in a powerful economic bloc. But isn’t this something like the relationship between the United States and its federal government? Davis and Frieden also take on immigration in Europe, Scotland’s threats of secession, Northern Ireland’s attitude toward the Republic, and the bargaining chips in play when the UK tries to strike new trade deals with the EU and the US. Not to mention all the basics of Brexit packed up in one very engaging discussion.

Disclaimer: This podcast was recorded on March 7, 2020, before the WHO declared the coronavirus outbreak was a pandemic.

Host
 

Kathleen Molony, Director, Weatherhead Scholars Program.

Guests
 

Jeffry A. Frieden, Faculty Associate. Chair; Stanfield Professor of International Peace, Department of Government, Harvard University.

Christina L. Davis, Director, Program on U.S.-Japan Relations; Faculty Associate. Susan S. and Kenneth L. Wallach Professor, Radcliffe Institute for Advanced Study; Professor of Government, Department of Government, Harvard University.

Related Links
 

Transcript
 

Kathleen Molony (00:23):
Welcome to the Epicenter podcast from the Weatherhead Center for International Affairs at Harvard University. My name is Kathleen Molony, director of the Weatherhead Scholars Program. We call today's show “Brexited!” 

It's a new day for the UK. The Brexit saga has finally ended. After three years and a variety of tiresome attempts to stall it, the United Kingdom officially left the European Union on the evening of January 31st. Brexiteers partied in the streets of London waving flags, Big Ben couldn't bong because it was in disrepair, but it rang out on thousands of cell phones. Now that Brexit is a done deal, what will happen to the promise of the EU, the free movement of goods, services, capital, and labor? Will the four freedoms suddenly run out for this former empire or will the UK make its own deals with the EU as it fashions its own destiny? Before we begin, let's hear a sample of the impassioned rhetoric around Brexit:

Tony Blair, excerpt from speech (01:29):
We are proud citizens of this country, Britain, who believe that in the 21st century we should maintain our partnership with the biggest political union, the largest commercial market on our doorstep.

Teresa May, excerpt from speech (01:41):
Remaining inside of the European Union does make us more secure. It does make us more prosperous, and it does make us more influential beyond our shores.

Nigel Farage, excerpt from speech (01:51):
Between your countries and my country, we do an enormous amount of business in goods and services. That trade is mutually beneficial to both of us, that trade matters. If you were to decide to cut off your noses, to spite your faces and to reject any idea of a sensible trade deal, the consequences would be far worse for you than it would be for us.

Mark Francois, excerpt from speech (02:18):
And when the sun rises on the 1st of February, it will do so on a free country. Mr. Deputy Speaker, all I want for Christmas is not...EU!

Kathleen Molony (02:37):
What do we really need to understand about Brexit? Today, we're asking two Weatherhead Faculty Associates for their insights. Jeff Frieden and Christina Davis are both professors in the Department of Government here at Harvard. Jeff Frieden studies the politics of international economics and has written widely on the effects of globalization. Christina Davis specializes in the politics of international trade and the foreign policy of East Asia and Japan. So she brings a unique perspective from outside of Europe. 

Let's start by looking at the pros of being in the EU. The UK joined back in 1973 when its economy was in a slump, and it's clearly improved since then. What did the UK gain during its 47-year membership in the European Union? What were the tangible benefits to the UK? There must have been a good reason to stay in for 47 years.

Christina Davis (03:30):
The free flow of goods, people, and capital is beneficial for good business. And so the UK has benefited on the economic front from integration with the European Union. And we see this as their economy has grown and gone from being the weakest part of Europe to among the strongest performing economies. Of course, it is always difficult to attribute economic outcomes to a single policy. How much of its economic performance is due to the certainty of access to European markets and the benefits of European membership is difficult to pinpoint.

Jeffry Frieden (04:14):
The UK is a relatively small market by global standards; the EU is the world's largest market today. Even in the early 1970s, it was a very large market. And for the UK to move from a single country market to a multi-country and eventually a 28-country market was a big increase in the possible consumers that they could service. By the early 1990s, late 1980s, early 1990s, the European Union was a single market in which there were no barriers, as Christina said, to the movement of goods, capital, and people. And to have complete access to a single market of 400 some million people was a big advantage for British producers. I would also say that London is a financial center, it is a global financial center and joining the EU made it Europe's financial center as well. It had been a global Commonwealth Anglo-American world financial center before 1973. After 1973 as global finance grew almost exponentially, it positioned London to be not only a global financial center but the main financial center of Europe.

Kathleen Molony (05:23):
London has long been the financial nexus of Europe. Do you think this is going to change now? Do you expect economic upheaval for Britain in the short run?

Jeffry Frieden (05:33):
There will certainly be dislocation. Moving out of what essentially is a single market causes problems. It means that there will be customs and borders and customs officials and customs warehouses and tariffs and quotas and barriers to trade at the border or in the English Channel as the case may be where there weren't any before. So there'll be a dislocation. On the purely financial front, there are questions about whether London will be able to continue to play its role as the principal financial center of Europe. There are both regulatory and purely market-based reasons why some of its activities might be replaced by financial institutions in Frankfurt or in Paris or in Amsterdam or in other European financial centers.

Jeffry Frieden (06:20):
So there will be dislocations as Brexit comes into play economically, it hasn't yet because we're still in transition. But when Brexit takes effect economically, there will be dislocations, and there will be long term effects as the United Kingdom loses completely open access to the European or the EU market. No one knows what the deal that will be struck looks like, but the optimistic scenario that the British treasury worked out says that the cost will be about five percentage points of GDP. That's not trivial, that's two years worth of economic growth that Brexit will cost according to the official measures in the optimistic scenario from the British treasury.

Kathleen Molony (07:01):
Christina, as someone who also looks closely at international trade flows, do you see these dislocations as well?

Christina Davis (07:07):
Yes, certainly. Britain will be going to the status of a normal world trade organization member, which is the status that the United States has in its trade with Europe. And so like other WTO members, the UK will face a 10% tariff on automobile exports to Europe. It will face as high as a 35% tariff on dairy products to Europe. And so depending on the sector, some goods are going to face a significant increase in cost to export to Europe unless they succeed in negotiating a free trade agreement with Europe that would bring those tariffs down to lower, possibly zero. And that is a substantial issue. At the same time, the United States has been able to export cars and agricultural goods to Europe with those tariffs priced into the sale.

Kathleen Molony (08:03):
Let's quickly review some of the reasons why Brexiteers wanted out, and we'll hold the issue of immigration aside for the moment. They were tired of the EUs bureaucracy, the high cost of membership, and the regulatory burdens of the 28-member institution. Did the UK have legitimate political and economic grievances?

Christina Davis (08:24):
There are many regulations where harmonization of standards can facilitate business, so having similar accreditation for financial services, being a lawyer and having your credentials recognized and health standards so that a new drug being released, which is of course a prime interest for us all as we're concerned with the health crisis. Having one standard-setting body within Europe is much easier than having to have a separate approval process. And so many of the pharmaceutical industry experts are concerned whether they will now have to pass new testing procedures for their drug to receive recognition within the UK.

Jeffry Frieden (09:11):
And with respect to the complaints, I don't know what legitimate means in this context. But if we can understand I think why there were complaints, if you think of what it might be if and when or in as much as the state of Mississippi is subject to federal regulations that it might not agree with or the state of California subject to federal regulations that it might not agree with. So you have a federal government, now the Europeans try not to use the word federal, but effectively it's a federal government in Brussels that is setting regulations for the entire European Union. And that means that there are some countries for which those regulations are going to be too strict and some for which they're going to be too lenient. And I think the United Kingdom has long been an outlier within Europe on a variety of health, safety, social, labor, and other standards.

Jeffry Frieden (10:00):
And so I think many people in Britain felt that the European Union was imposing standards or regulations, as Christina says on them that they would not have imposed on themselves if they were independent. So in a sense, you're trading off the value of being part of a very large single market on the one hand against the cost of having to submit to that market's policies, standards, regulations, which is exactly the same calculus that states make or maybe that the 13 colonies made back in the 1700s wondering whether they should have a federal government or be independent states. Of course, you know that opinion was very deeply split in the United Kingdom. There were many who felt that European regulations were good for Britain, and then there were a lot of others who felt that they weren't. I have to say that some of the complaints about the regulations were silly and misunderstood what the regulations have to do with them.

Jeffry Frieden (10:56):
The one that always sticks in my mind is the so-called curvy banana because the European Union had what the Brexiteers would say—and what critics of the European Union would say—is the European Union tells us how curvy our bananas have to be. And the truth about that is that like any government, there are standards set. It's like saying USDA prime beef. So there are standards for the bananas that are sold in the European Union and the degree of how long the bananas are and how irregular they are and things like that determine whether the sellers can call them great A prime or they have to be sold at a lower price. It's just a standards anything, exactly as Christina said. So the EU did not tell British people that they couldn't eat curvy bananas, they simply label them like we label beef, USDA prime or things like that.

Kathleen Molony (11:48):
But of course, the debate over all of this was incredibly dramatic.

Christina Davis (11:53):
Right. And it also is assuming that the UK alone can then set its preferred standard. But back to Jeff's earlier point that the UK is a small country. When it joined with the EU, not only did it gain a market, it gained bargaining power. And there are some regulations where the UK actually shares the European view. And one example that has been in the news is the chlorinated chicken where European Union position has been that they do not want to eat chicken that has been washed in a chlorine rinse. The United States poultry industry thinks that the way to have safe poultry is to rinse with chlorine. And so Europe has not accepted American chicken. And in this case, actually the fear is that when the UK now as a single small country negotiates with the United States, they won't actually get their preferred regulation and will instead be forced to eat American chlorine rinsed chicken. And so the regulatory battles could go either way in terms of getting your preference by being in the large EU versus being the small country.

Jeffry Frieden (13:08):
Yeah. We see this already because the EU and the US are engaged in continual battles, I would say at this point, certainly negotiations over trade. The UK, many of the Leavers, said, "Well, we'll sign a trade treaty with the US the next day." And in fact, Donald Trump when he was campaigning talked about signing a trade treaty immediately. And at this point, Brexit actually having happened, the US is saying, "I think you're going to have to wait a while." And effectively the UK is at the end of the queue to sign a trade treaty with the US while the EU is at the front of the queue because they're one of our most important trading partners.

Kathleen Molony (13:46):
Immigration was arguably the top issue for Brexiteers. The tipping point was said to be 2004 when the EU expanded membership to include 10 more countries, most of them poor Eastern European countries. So citizens from those countries came to the UK where the jobs were better and immigration increased. Were there valid concerns about immigration or did they get swamped by the emotional energy surrounding the issue?

Jeffry Frieden (14:13):
Let's go back a little step just to make clear what we're talking about with respect to immigration. As you say, this was concern in the Brexit context, not about immigrants in general, but about immigrants from EU countries. And to understand that you have to see that there were very few Eastern and Central European immigrants or migrants into the UK over 2004. In 2004, the Eastern and Central European countries joined, in 2007, Bulgaria and Romania. And upon joining, they were given permission to work in the UK, and about a million of them moved to the UK almost immediately within a couple of years. So by 2011–12, something like five and a half percent of the British population was EU, meaning mostly Eastern and Central European. And they made up about 7 and 8% of the labor force. So this was a big increase in labor force.

Jeffry Frieden (15:09):
The reason they were given work permits before actually other countries in the EU were given work permits is that at the time there were labor shortages in Britain. And so the government said, "We need workers." And if you went to London or the other big cities as I did at the time, you would find that the restaurants, the hotels, the bars, everything was being manned by Poles and Romanians and Bulgarians and Latvians by Eastern and Central European. They were doing a lot of the low-wage service jobs, including a lot of construction jobs. The lore at the time was talking about the Polish plumbers. So from an economic standpoint, this was good for the UK because it brought in labor where it was needed. For British workers who were competing or felt they were competing with these immigrants, it wasn't so good.

Jeffry Frieden (15:53):
And especially in some of the more distressed areas of the North and the Midlands, the sort of decaying industrial areas of the UK, which are the British equivalent of let's say, Ohio or Michigan or Wisconsin, the industrial belt in the US. In those areas, I think there was a very strong feeling that these people were coming in and taking away jobs that British people would have had otherwise. There's an interesting aspect of this in my mind because until 2004 or so, there had been a lot of anti-immigrant sentiment in the UK, but it was mostly directed at people from the former colonies, particularly India, Pakistan, Jamaica. And there was a racial component to it to be perfectly honest, but now you had this flood of immigrants from countries that if anything are whiter than the British. And all of the anger and bitterness was focused on them. So it was interesting to see this switch from being angry about Pakistanis or Jamaicans taking jobs to being angry about Poles or Romanians or Latvians taking jobs. It was a big issue, especially in these distressed areas.

Christina Davis (16:59):
It'll also be really interesting to see going forward whether the UK tries to keep the question of immigration separate from the question of trade. Where European integration has been distinct is combining this full package of integration on goods, people, and capital. Many other countries have trade agreements that don't affect immigration. And I think the UK might try to now negotiate just on trade where Europe does feel that labor policies for free mobility would be part of this conversation.

Kathleen Molony (17:36):
Of course that raises the question as well as to what is going to happen to these immigrants. Are they leaving? Will there be opportunities for those who stay? What about those who were staying in the relatively depressed areas, have they left? Is there still a labor shortage in the current environment?

Jeffry Frieden (17:54):
Well, labor shortage or not, I think most of the migrants feel a lot less welcome than they did before Brexit. The laws haven't changed directly, people who are there now are so-called grandfathered in. That is, they have the same rights they did before Brexit. And one of the reasons the UK has done that is because there are a lot of British people living in the European Union, and so they don't want retaliation on the part of the Europeans against British citizens living in Europe. So at this point, the EU citizens—not non-EU citizens, but EU citizens in the United Kingdom—continue to have the rights that they did before. And there have been promises made that there will be a path to citizenship and they will be given municipal rights and things along those lines. But that's the law.

Jeffry Frieden (18:39):
The environment has become in many areas more hostile to EU migrants. What we've seen is actually there's been a decline in the number of EU citizens living in the UK since Brexit, since the vote, even though the laws really haven't changed, just sort of the atmosphere I think has changed.

Christina Davis (18:58):
And it's also affecting young people who had hoped to be European citizens able to go where they wished following the job and other personal choices. And having the UK outside of Europe may make it less attractive to this group of young promising potential workers and elites. And so I think that's one of the costs of exiting Europe will be losing that talent pool.

Jeffry Frieden (19:29):
Great. I think that's a really interesting point to make, interesting especially for us as academics. Christina and I, we spend time in Europe and in London, and London had become one of the great locations for European college students to go, college students or postgraduates to go to study. English is sort of the lingua franca of Europe, and everybody wanted to, not everybody, many, many Europeans, millions wanted to study in the UK. There were lots and lots of exchange agreements, British academic life was integrated into the EU. A lot of the funding for research in Britain came from EU funding, which is quite generous. And that's all going to come to an end, so it does raise questions on this kind of cultural front of what's going to happen to London as the young person's capital of the European Union.

Kathleen Molony (20:16):
And I think it also raises the question, what's going to happen to the young people who now are going back to their countries? Will they be able to find employment? And what impact will that have? You both mentioned the United States. I'd like to return to the US in all of this discussion. How will the US be affected by Brexit? Should we be concerned, and should we care?

Christina Davis (20:40):
The United States was a major force behind the European project supporting that it was better for the European continent to have high levels of cooperation for economic growth and avoiding all of the wars and tensions of the past. And so from the perspective of US geo-strategic goals, it would be a setback if there were higher political tensions in Europe. Now, at this point it seems like an amicable divorce, and so we probably can hope that NATO will remain a strong center of foreign policy coordination in Europe. And so I think that the implications for US strategic goals at this point do not seem concerning. At the same time, the economic front, American firms now have to also adjust to sending to two markets different standards, and there will be costs of business for American firms.

Jeffry Frieden (21:42):
That's all absolutely right, and I think it's correct to say that at this point it's not throwing any kind of a monkey wrench into the relationship either with the UK or with the EU. But if we think a little bit longer run, I have some concerns. I mean the UK was probably the single most pro-US member of the European Union. And if we think of members of the EU on a spectrum, the UK was probably the one that was most likely to be pushing the EU in a direction that American policymakers would have found sympathetic. At this point, the UK is out of the EU and is not involved in the decision making process. And the specific gravity, if you will, of EU foreign policy concerns has shifted, especially in the context of the Trump administration and a lot of tension between the US and the EU.

Jeffry Frieden (22:36):
I think that had the UK stayed in, it would be a strong force for maintaining close ties with the US. With the UK out in some sense there is more sentiment in Europe, in the European Union for marking its own course. You can see this in some of the conflicts over Nord Stream 2 over the gas pipeline with Russia over more generally policies in the EU towards Russia and towards China where there is increasing separation between the US and the European Union. So I think if we think of the broader geostrategic considerations, the UK out probably hastens or exacerbates eventual divisions between the US and the EU.

Kathleen Molony (23:22):
Jeff, at the prospects or lack thereof for a broader UK-US trade agreement, could you talk a little bit more about that? Is it going anywhere?

Jeffry Frieden (23:34):
It will probably go somewhere, but I think these things are very, very complicated. There is very little support in the US on either side of the aisle really for new free trade agreements. And free trade agreements have to be ratified if they are in fact treaties, they have to be ratified by the legislature in both countries. And that's probably not an issue in the UK at this point. But in the US, it's not clear that you would be able to get support for a comprehensive free trade agreement with the UK. So I think that it will probably happen eventually, but it's probably also going to take a long time and the British are going to find that they're going to get a whole lot less than they would have wanted.

Jeffry Frieden (24:18):
This goes back to Christina's point, the UK bargaining with the US, and the British economy is about the size of the California economy. It's not a major world economy. The EU is a major world economy, and so the bargaining power of the UK is much less than that of the EU. So I think this probably means that it will be very difficult to negotiate an agreement.

Christina Davis (24:40):
I'm actually a little more optimistic on a US-UK trade agreement because many of the US trade agreements are fundamentally about foreign policy not the size of the economy. And so quite a bit of political capital is exercised to negotiate a free trade agreement with small countries, Colombia and Jordan for the sake of cementing an alliance of geopolitical concern not just gaining access to a market. And so that special friendship that Jeff was talking about on the foreign policy front and President Trump's strong ties and support for Prime Minister Johnson would lead to a strong push to show the symbolic unity of announcing a trade agreement. But Jeff's right that there isn't an appetite for ratification in Congress of deep comprehensive trade liberalization.

Christina Davis (25:38):
I actually look at the most recent agreement between the United States and Japan as what we might see, where there was a desire to conclude a trade agreement but not a willingness to have it be comprehensive and a willingness to go through Congress. And so the US and Japan reached an agreement on goods, trade liberalization that lowered some tariffs and improved the market access, did not have to go through Congress, did not involve harmonization of services and regulatory standards, and yet achieves the ceremony of signing an agreement for that symbolic value of showing cooperation and solidarity with the UK. And I would expect that could be done fairly quickly and have some meaningful economic impact as a stage one towards a more comprehensive US-UK trade deal.

Jeffry Frieden (26:40):
That all makes perfect sense. I would ask, is it likely to be done in an election season? Number one. And is it likely to be done if there's a Democrat in the White House? So those are questions I think. The point that I would make, which Christina has highlighted, is that trade agreements are not popular in the US now. For geostrategic reasons, the Trump administration is more sympathetic to an agreement with the UK than I think a Democratic administration would be. And so we'll have to see. But I think Christina's point, I think, is a good one that the possibility of some form, maybe a framework agreement of some sort just to be able to say you've done something might come to pass.

Jeffry Frieden (27:23):
But a free trade agreement like we've actually negotiated with other countries, very unlikely. And I think that's important because that's what are sometimes called the hedge-fund Brexiteers, that is the Brexiteers who think of Brexit as being globalizing. That's what they want. They want the free trade agreement with the US, they want to remove all the trade barriers. And that's just not going to happen because they don't have the bargaining power.

Kathleen Molony (27:45):
I want to pick up on what you said about the Democrats. Why don't they have an appetite for a trade deal?

Jeffry Frieden (27:51):
Christina was saying that there's the symbolic connection between Johnson on the one hand and Trump on the other. So I don't think it's an economic issue, I think the symbolic value of being seen as coming to the aid of a Brexited Britain is high for Trump, but not at all high for the Democrats. The Democrats generally speaking, and Obama certainly, and virtually every member of the former administration, was opposed to Brexit and supported the Remainers in the British political sense. So from a purely political standpoint, the Democrats don't want to strengthen Boris Johnson, they don't see him as a friend. Trump does see him as a friend and would probably want to strengthen him. So it's not an economic issue, it's more a political issue on that dimension.

Christina Davis (28:36):
It's also been very interesting how Northern Ireland comes into play in the questions about a future trade agreement and where some Democrats have come out quite strongly that they don't want to sign any kind of agreements that would push Northern Ireland issues into a controversial terrain.

Kathleen Molony (28:56):
The background, of course, is that Scotland and Northern Ireland want to stay in the EU.

Jeffry Frieden (29:01):
Well, Northern Ireland as we know has been central to the whole controversy really. It was the main sticking point in negotiations between the EU and the UK leading up to Brexit itself. And it remains a real issue. It especially remains an issue because of the recent election in the republic, in southern Ireland. I was in Belfast in Northern Ireland last July. And on the way to the airport, I actually got in a taxi, and the taxi was driven by a taxi driver with a big orange flag, which the orange men are the Protestants, the hard-line Protestants in the North. And he asked me what I was there for, and I told him I was there for a conference on economics.

Jeffry Frieden (29:44):
And he said, "Well, what do you think is going to happen with Brexit?" And I told him a little bit. Then I asked him, “So what's the implication of Brexit for Northern Ireland?” And he said, "Oh, it's going to lead to the unification of the country." This is someone on the orange, on the Protestant side, saying this is the end of Northern Ireland as part of the United Kingdom. Taxi drivers are notoriously unreliable as predictors of the future, but a lot of people in Northern Ireland are now talking much more seriously about the prospects of some form of unification, probably with autonomy for the north, but some form of unification because the north is completely dependent on the south economically.

Jeffry Frieden (30:21):
The south is rich, the north is poor, everything's reversed. Thirty years ago you would go to Northern Ireland and people in the north would say the Protestants, the unionists in the north would say, "How can you think of making us unite with this poor, priest-ridden, backward country that doesn't allow divorce or abortion? And now you go to Northern Ireland and the unionists say, "How can you force us to unite with this rich country that allows abortion and divorce and is so left wing?" So things have changed a lot. The north is not a viable independent economy, it relies on the south. And the absence of a border is central to the resolution of the troubles, so I think it's a real sticking point.

Kathleen Molony (31:02):
Let's talk about that other part of the UK: Scotland. Scotland wanted to stay in the EU. Are Scotland's threats to secede credible?

Christina Davis (31:12):
It also seems possible that Scotland would see a future within the European Union as stronger economic outcomes and politically the right time to try and make that push for independence. The solidarity against Brexit within Scotland helped give UKIP greater political strength. And so I think they are going to try and ride this momentum to push for a new referendum. At the same time, it will be very interesting to see whether the European Union wants to tip its hat on whether an independent Scotland would be allowed into the EU. And there's many concerns about the precedent this would set for other regions in European members. So there has not been a clear signal on this point for good reasons.

Jeffry Frieden (32:13):
It's a powerful threat that the Scots have against the English. A referendum, as I understand, it has to be approved by Parliament. But Scotland holds a lot of cards, the threat of, to put a name to the region in question, the threat of a Catalan-style rebellion against the United Kingdom is scary I think for a lot of people in the UK. The Scot's nationalists who have done extremely well because of Brexit I think realize that they have a pretty strong hand. And so they've been talking about pushing for a referendum. Now, it may be that the referendum, the threat of a referendum is enough for them to extract a level of autonomy or a level of government funding that makes them happy. I sort of doubt that Scotland will end up leaving the UK because that threat itself is enough to extract a lot from the British government. But it's conceivable.

Kathleen Molony (33:18):
What are the bargaining prospects for a trade deal between the UK and the EU?

Jeffry Frieden (33:23):
I think one thing that we could mention is the potential for bargaining between the UK and the EU. That's going to happen, the UK is no longer in the EU, it's a nonmember. So on a variety of issues, it's going to engage in bargaining with the EU whether on trade or financial regulation or anything else. And what I think a lot of people in the UK don't quite understand is how weak their bargaining position is. Trade with the EU is half of all of British trade, trade with Britain is about 8 or 10% of EU trade. So trade with the EU really matters to the UK, it doesn't matter anywhere near as much to the EU as a whole. It matters for a couple of countries, Belgium and the Netherlands.

Jeffry Frieden (34:06):
That means, just thinking of trade that the bargaining chips are primarily in the European Union's hands, and that's going to make it very difficult for the UK to get what it wants on the trade front. On other dimensions, tourism, citizenship, again, I think the bargaining ships are largely with the EU. The only area in which the British have a very strong hand is in finance because of the special role of London as a financial center. But I think a lot of British policymakers and maybe British citizens are going to find that they're going to have to accept the deals with the EU that are not as favorable as they might've liked. Do you agree, Christina?

Christina Davis (34:43):
I do agree. I think they are going to face a hard negotiation, and the only source of leverage is if it is framed as a regulatory bargain to the extent the UK wants low regulations, they can threaten to walk away from the table and get a low regulation outcome by doing nothing. And Europe wants convergence where they coordinate and bring the UK to have the same regulations as Europe. Now, because the UK is small, as Jeff says, it may not be a problem for Europe to simply say, well, if you won't accept our regulatory standards, we won't accept your products.

Jeffry Frieden (35:27):
Well, that's at the core of the discussions now, I think you're absolutely right. If the UK insists on diverging substantially from EU regulations, EU is just going to put barriers at the border. And again, that's going to be costly for the UK.

Kathleen Molony (35:43):
This begs another question, if another vote were held today, do you think the results would be the same?

Jeffry Frieden (35:49):
That's like asking us to project the results of the election in this country. I have no idea. The polls say the country remains just as divided as it was at the time of Brexit, so it depends on things like turnout and other things. I don't think a lot of people have changed their minds. I think the Leavers still are happy to have left, and the Remainers still would have preferred to remain. So there is a little bit of movement around the margins, but I doubt it would change much.

Christina Davis (36:15):
Which is actually good in the sense that when the referendum first happened, I was worried that misinformation and misunderstanding had contributed to this outcome. And there were a lot of second guesses, stories about Google searches about what is the EU after the vote that made us worry about uninformed decisions. And the fact that actually the opinion in the UK remains fairly consistent after two years of heated exchange that provided quite a bit of information shows that for better or worse it was not just a mistake but actually a true division of opinion. And that's the difficulty of democracy.

Jeffry Frieden (36:58):
Right, right. Especially when the vote is so close.

Christina Davis (37:02):
Right. The minority believe strongly and yet has to go along with this decision.

Jeffry Frieden (37:06):
There are countries in which candidates win the popular vote and lose the election, hard to believe, but it happens.

Kathleen Molony (37:17):
What are the misperceptions that Americans have about Brexit and the EU?

Jeffry Frieden (37:22):
Well, one of the things that I think almost everybody outside of the continent gets wrong is what exactly the EU is, and this came up during the Brexit discussions. A lot of people, including a lot of people in Britain and a lot of people in the US, think the EU is a bunch of faceless bureaucrats in Brussels who are untethered from any government and who are making policy. And that's just wrong. The European bureaucrats, first of all, there are very few of them, it's not a big bureaucracy. And secondly, the policy is not made by the bureaucrats, the policy is made by the elected governments and their representatives, both at the council and the council of Europe, which is made up of ministers from the national governments and the European parliament.

Jeffry Frieden (38:04):
So European policy is actually made by elected officials, by elected governments. It's implemented by bureaucrats, and bureaucrats have some independence as they do in the US. So the one thing that always bothers me in these discussions is this notion that Brussels, that is the Eurocrats in Brussels, are forcing policies on the member states. The member states have to agree on these policies before they become European policy. So that's my pet peeve. There are many pet peeves available, I guess. Christina has some, I'm sure.

Christina Davis (38:36):
At the same time, the policies often leave room for interpretation, and that interpretation falls to courts. And one of the questions about “what is Europe” that has been misunderstood is the role of the European Court of Justice. And I think Americans have not really thought about what would it be like to have a transnational court ruling on substantial areas of policy because the US federal system leaves many of these issues to the states. In Europe, the European Court of Justice will be passing judgements on subsidies that are critical issues about how you want to support an industry or a region.

Christina Davis (39:24):
And the prohibition on state subsidies is fairly rigid by EU laws and has led to some governments having passed aid to an industry or a region having that rejected by the European Court of Justice and they have to withdraw that aid. And those are some of the issues that in the UK they didn't want to be subject to the European Court of Justice ruling on their own regulations or subsidies. Not so much that the UK plans to roll out a huge increase in subsidies, but on the question of sovereignty and who decides there was push back against this transnational court making the decisions.

Kathleen Molony (40:11):
And wasn't there always doubt in the UK as well and skepticism regarding its membership in the EU?

Jeffry Frieden (40:19):
Well, the original referendum was very positive, it was overwhelming. And there had been a lot of enthusiasm. I think Christina makes a very important point, which I guess I would think of as being the question of whether you're willing to surrender sovereignty on a variety of dimensions in order to gain access to a market, cultural connections, personal connections and things like that. And different people come down on different sides. Obviously, more or less half of the British population came down on one side of that and more or less half came down on the other side. But I guess another way of saying it is that being in the EU clearly involved and involves for its current members the surrender of a lot of policies that we normally associate with sovereign states, whether it's regulation or subsidies or trade policy, obviously.

Jeffry Frieden (41:14):
There are some that haven't been surrendered like foreign policy, but a lot of things that we think of as being the appropriate role of states have been surrendered. The other side of the coin, so to speak, is Christina made this or alluded this before that early on when people talked about European unification, there was talk of the United States of Europe. You don't have that much anymore. But the idea of the United States of Europe is useful for thinking about this. The American states have given up a lot of sovereignty, and there've been continued battles over it. We had a civil war over it, for example, not only over sovereignty, but the states still battle against the federal government in many instances.

Jeffry Frieden (41:51):
And there are many people in states like California or New York or Massachusetts who don't like the fact that the federal government can control what happens in our sovereign or semi-sovereign states. So thinking about the trade-off along those lines I think may help people to understand what's at stake.

Christina Davis (42:08):
And the Supreme Court decisions in the US can also be controversial on when does the Supreme Court dictate to a state what their policies should be.

Kathleen Molony (42:17):
It'll be interesting to see what happens in next year, five years and 10 years down the road. That wraps up today's podcast. Please subscribe to Epicenter to ensure that it stays in the UP, the universe of podcasts. I'm Kathleen Molony. See you next time.