In recent weeks I have heard a lot – both publicly and privately – from EU leaders and from the CEOs of some of the region’s largest companies. No wonder. They had a lot to do with events in Ukraine, a shift in their power supply lines and the prospect of knock-on effects, including a possible recession.
But I found that many also envisaged the possibility of a significant deterioration in trade relations with the UK should the UK make unilateral changes to the Brexit deal in relation to Northern Ireland and those moves are deemed illegal.
Herbert Deiss, the CEO of Europe’s largest automaker Volkswagen, told me he recently held high-level talks with the British ambassador in Berlin about the possibility of a trade war.
“There’s a lot of communication going on. And there’s also an addiction,” he told me. “We have a British brand, Bentley, which is doing very well…plus, the UK is our biggest export market in Europe for the premium brands of VW and Audi…so I think now, shall we say, there’s going to be a shared interest to keep.” [trade] open.”
But while that’s what everyone wants, there’s a quiet realization that it might not be what they’re getting.
At a recent private lunch, a European leader asked if he thought the troubles surrounding Northern Ireland could lead to a trade war, and answered succinctly “yes”. In the eyes of this particular leader, it came as a real shock that the pragmatic solution that both sides had agreed on could be torn apart. And the perception is that the risk of a trade war “harming your country” stems mainly from internal party politics and not from substantive concerns about Northern Ireland.
Polish Prime Minister Mateusz Morawiecki told me trade wars are a “lose-lose” situation. And he suggested that the main antagonism he was trying to compromise on was between Paris and London.
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“We will try to calm the situation between France and the United Kingdom as much as possible, because I believe that only Putin and our enemies will be satisfied with another disagreement between such close partners as the United Kingdom and the European Union.” , he said. he said.
At the same event, Irish Taoiseach Micheál Martin told me that such a fate would “hopefully” be avoided because a trade war would be “shocking” and “unnecessary”.
When asked if the EU would draw up lists of UK goods on which to levy duties, Mr Martin told me: ‘We won’t go into detail about that because hopefully we never have to consider it . Right now I’m just saying, and I’ve said it again and again, get down there, go into the tunnel, the UK government and the EU, negotiate and get the technocrats in there.”
In the weeks that followed, Irish diplomats prowled the corridors of Europe warning of what they see as a “low point” in EU-UK relations and saying Berlin and Paris supported a robust response.
Work is being done behind the scenes.
In recent trade wars with the US, for example, the EU (with Britain as a member at the time) focused on the most political pressure points – Harley Davidson motorcycles, Levi jeans and Jack Daniel’s whiskey and Florida’s orange juice.
The US, in turn, focused on the famous British cashmere and whiskey exports. All were deliberately chosen to maximize political pressure and headaches in swing states. The equivalent process for the UK could focus on auto exports from the North East, fisheries and agricultural exports.
The question then becomes whether the UK would respond in kind or at all. Brexit Secretary for Opportunities Jacob Rees-Mogg has called the idea that the EU would impose tariffs an “act of self-harm”. For the EU and the UK, suffering from low growth and high inflation on all sides, a trade war threatens to exacerbate both.
As Mr Deiss clarified, British diplomats have met with German automakers to defend their interests, suggesting there are fears of tariffs for automakers.
European leaders are moving in private, but they would need to agree on the scale and scope of any retaliatory action. None of this is certain, but business groups fear that even the threat of this process will be enough to deter some investment. The process of escalation is certainly being prepared.
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