Houston’s economy could feel Brexit chill
Last week, Britain’s Prime Minister Theresa May suffered the second largest defeat in Britain’s parliamentary history. Her bill governing the terms of Britain’s withdrawal from the European Union was resoundingly rejected by Britain’s parliamentarians. The margin of defeat, 149 votes, has been exceeded only once before in Britain’s long history. That would be when she tabled the exact same piece of legislation in January. Given that the text of the bill had not changed, the second defeat is unsurprising. This failure will have global consequences that will be felt as far away as Texas.
Under the terms of the EU’s exit procedure, a country has two years to negotiate the terms of its departure from the EU. After two years, the departing country ceases to be a member, whether or not negotiations are complete. In Britain’s case, the two years are up on March 29. If Britain were to “crash out” without a withdrawal agreement in place, it would become a nation without many of the ordinary functions of the state in place.
As an EU member, for example, Britain has not needed to have its own trade negotiators. It does not have an equivalent to the Food and Drug Administration, nor a fully functioning regulatory authority for aviation. It also lacks the ability to regulate civil nuclear materials. But the biggest impact would be at Britain’s borders. With no framework for imports and exports from our main European partners, we risk shortages of food and medicines and disruption to manufacturing supply chains. All this might be just days away.
How did Britain, with its reputation for stiff competence, get into such a mess? The answer lies at the beginning. During the Brexit referendum campaign, the “Remain” side gave worthy technocratic explanations of the benefits of EU membership. In contrast, the “Leave” side said that Britain’s treasured National Health Service would receive an additional £350 million ($464.5 million) per week if we left the EU. Britons, with our proud history and imperial nostalgia, would be sovereign once more — free to trade with the world. The £350 million figure was dropped the morning after the referendum (it wasn’t true). But the rest remained. As the leading Brexit campaigner Michael Gove had stated: “The day after we vote to leave, we hold all the cards and we can choose the path we want.” Boris Johnson, the former London mayor, said, “There is no plan for no deal, because we are going to get a great deal.” By promising the impossible throughout their campaign, Brexiters created a huge expectations gap between the dream of Brexit and the tiresome reality.
This problem was compounded by Theresa May when she became prime minister. Though not a member of the Brexit campaign, she adopted their rhetoric and announced that Britain would sever all its ties to the EU but somehow retain most of the advantages of membership, “on a fully reciprocal basis.” She had an opportunity to tell the British people that there could be advantages from Brexit, but it would involve tough choices. But she didn’t mention the tough choices. May also insisted that “no deal is better than a bad deal.” But there’s no way she believes that: All government departments are clear on the chaos that will ensue from no deal.
What does all this mean for Houston? Britain outside the EU will inevitably focus more of its attention on the United States. This includes the major British energy companies BP and Anglo-Dutch Shell, which will find it harder to operate in Europe after Brexit. Similarly, Britain’s universities will have fewer opportunities to work with their European partners, which might increase opportunities for Houston’s universities to collaborate with their British counterparts. But a no-deal Brexit will be bad for everybody. At a time of global economic uncertainty, a major shock to trade and productivity in the world’s fifth-largest economy could cause a wider slowdown further afield. Even Houston’s dynamic economy might feel that chill March wind.
The unwillingness of Britain’s political parties to work in a bipartisan way to pass legislation means that no outcome is simple — a problem familiar to American ears. The likeliest outcome right now seems to be a version of May’s deal that involves a customs union with the EU, which the opposition Labour Party might support. But Brexit will not end quickly: Years of negotiations on our final trading arrangement with the EU stretch ahead of the exhausted British public.