Why Brexit means Britain’s chances of getting a good trade deal with India are slim

Generally, it stands to reason that the larger you are, the more chance you will have of securing an advantageous trade deal. This certainly seems to be holding true in the case of the UK and the (rather larger) EU’s attempts to secure closer economic relationships with the United States and with the emerging global industrial superpowers of India and China. Britain finds it fairly easy to adapt existing EU deals with the likes of Kenya or Jordan, and the talks with New Zealand seem to be going well. But, with respect, they are not going to fuel the British economy as it loses its old advantages in continental Europe. Britain needs to hitch itself to bigger, more dynamic powerhouses. It is stumbling.

So far the EU is well ahead of the UK in the race for China, partly for political reasons. With Joe Biden pursuing much the same protectionist agenda as his predecessor – his vast $1.9 trillion stimulus is firmly focused on American jobs – neither the British nor the Europeans are likely to make much headway. The most “available” prize is thus India. Here, the British are a few months behind. EU negotiators will be at work by the end of the week; the UK side will have to wait their turn in the autumn. No surprise, that, given that the EU market is around 10 times as large as the British, but a sobering corrective to the buccaneering dreams of “Global Britain” some still seem to cling to.

Of course the British trade secretary, Liz Truss, is proud of securing some £1bn of Indian investment and the prospect of some 6,000 jobs being created (according to government claims) in the next year or so. Yet two hypothetical, but important questions, arise: how much of that investment would have materialised if Ms Truss and her department didn’t exist; and how much would have been precluded or delayed if the UK were still part of the EU, with all of its negotiating heft? It is at least possible that Indian companies, like the Japanese before them, would have preferred to have Britain as a base inside the EU single market, and would have invested more if that was still the case.

Strictly, such questions are impossible to answer, but Britain’s free trade deal with Japan – another economy larger than the UK – provides some clues, as the marginal advantage won by Britain over the old EU-Japan deal in that case was fairly modest (and, in all likelihood, dwarfed by the steady loss of markets and investment as a result of Brexit). The closure of Honda and Toyoda Gosei alone, at least partly down to Brexit, will cost more jobs than the new trade deal will generate. Some of these are already being felt, in the automotive sector, food and drink, farming and fishing.

Closures and job losses create headlines and political trouble; postponed or diverted future investment does not. Thus, other damage to the economy inflicted by Brexit will take longer to work through, and be “invisible” in the sense of factories and offices not built and jobs not being created that would otherwise have flowed into the UK as a relatively liberal part of the prosperous EU single market. Sweden is a bigger market for the UK, for example, and it will be a long time before growth in the dynamic economies of the east catch up with and compensate for the loss of EU markets through higher costs and increased bureaucracy. 

The Indian adventure also begs some other post-Brexit questions. In the past British trade missions to India have faltered because the British – and in particular Theresa May – proved hostile to Indian requests to make it easier for young Indians to come to Britain to study and work. Such was the phobia around immigration that such a relaxation of visa rules was judged impossible – and, it is worth mentioning, had little to do directly with EU free movement of workers. Now that the UK has its own points-based immigration policy of course all that can change, but a rapid increase in the number of visas for Indian students and professionals hasn’t been a major feature of the new regime so far; if it had, the right wing of the Conservative Party might have made its displeasure known.

There are encouraging noises from Westminster about a mutually advantageous exchange of the brightest and best, but little sense of the scale of such movements. Taken with the likely arrival of the trading and professional classes from Hong Kong, some in Brexiteer circles might wonder if this is the low-migration Brexit they voted for.

Thus trade with India is intimately linked to a more free movement of people between the UK and that country, just as it was with the EU. The British have indeed “taken back control” over their borders, apparently only to hand it over, in the perception of some, from Brussels to Delhi. Prime Minister Narendra Modi is as nationalist a leader as any in the world, and whatever sentimental feelings he may have about cricket and tea, he will put India’s interests first. He knows well that Truss and Johnson are desperate for a flagship trade deal with a “big” country, and, with the US and China out of the picture, India is the only realistic prospect, at least for now. Modi’s negotiators can be expected to drive a harder bargain with little Britain than even Michel Barnier did.