Brexit Blunder?

It looks like the Brits are in trouble. In the past 48 hours two major UK government ministers resigned: Brexit Secretary David Davis, and Foreign Minister Boris Johnson. It’s not hard to see why they’re gone. Brexit is really the only foreign policy issue that matters to most Brits, and the Davis-Johnson duo have been at it for nearly two years with zero results.

First, the least important outcome. The government of Prime Minister Theresa May is probably fine. It is no secret that May brought major Brexit supporters such as Davis and Johnson into the government to deal with the Brexit issue in part to discredit them. That has now – thoroughly – been done. While May still may face a backbencher rebellion (she leads a minority government so that’s always a concern), breaking the Brexit leadership’s back should give her more room to maneuver (domestically at least).

Second, this does not mean that the Brits are going back on Brexit. General sentiment among the sort of people who supported Brexit during the referendum two years ago has, if anything, hardened. Moreover, Labor leader Jeremy Corbyn is a semi-stealth Brexit supporter, so even if there were new elections and even if Corbyn became prime minister, Brexit would still be on the menu… albeit likely with a less impressive negotiating team.

Third, with the Brexiteers on the outside of London’s negotiating team, they are guaranteed to vote against any version of Brexit that they don’t care for. A hard Brexit is now the only reality.

A “hard” Brexit is one where the UK crashes out of the EU with no deal whatsoever. Any deal the UK has struck with the EU – for health and sanitation, tariff reduction, capital repatriation, or any of a thousand other topics – will be affected or restricted. Any UK supply chain that begins, ends or passes through any other country will become sticky, with many of them simply breaking. That impacts – conservatively – two-thirds of the UK’s external trade which itself accounts for roughly one-sixth of the UK’s GDP.

In every instance for every good and every transaction, the UK will need to decide whether to unilaterally retain EU rules or unilaterally adopt the rules of the target market in the hopes that the other side – also on a case-by-case basis – decides to allow the trade to flow without a legal understanding in place. The bureaucratic drag alone may well double the cost of doing business in the Kingdom before the political issues are even considered. London will try to establish trade deals with other players to make up for lost EU trade, but the EU is close and big and trade deals take months to years to negotiate.

Financial flows will be hit most of all. The Brit’s proclivity to let capital ebb and flow to wherever it wants to go have made London one of the world’s three largest financial centers. That is now over. Financial centers need a low-regulatory environment and access to a large market and political and market certainty. There will be no deal with the EU on finance, meaning there will be no unrestricted access to the EU, and with the uncertainty of a no-deal scenario, London’s financial industry will now decamp en masse.

Maybe one-quarter to one-third will relocate across the EU with Frankfurt and Paris doing fairly well. After all, at least some of the relocating bankers and financiers will need access to the EU from within. But most will go to New York which has a larger labor pool, similar regulatory format and global reach.

The EU will attempt to claim that financial clearing for euro-denominated transactions must be done from within the eurozone to prevent the Americans from gobbling up the lion’s share of the business. The Americans will disabuse the Europeans of that notion by threatening to force all dollar clearing to occur within the United States’ borders. Since Europe’s external trade is dollar-driven and not euro-driven it will be a fun conversation to watch but it’ll be pretty short. Regardless, London will not be a participant in the discussions. Regardless, London will hollow out.

All in all, the UK faces the greatest economic disruption since World War II. The Brits are looking down the maw of a minimum of a three-year depression where GDP falls by at least a fifth.

But all that was baked in before Davis and Johnson left. All that has been baked in since the Brexit vote. As the Greeks discovered at the beginning of their crisis, you cannot vote yourself rich… but you can totally vote yourself poor. There was zero chance the EU was ever going to grant the Brits the benefits of membership without the costs. Brexiteers like Davis and Johnson who claimed otherwise were either lying, stupid, or suffering from head injuries. The only options before the Brits now are reneging on Brexit (not politically possible), and a hard Brexit. And so a hard Brexit is the only road forward.

This is not a condemnation of the Brexit vote. I see the entire global system crashing down in the next one to four years. The Bretton Woods Order – the basis for that system – is an artificial construct the Americans designed, created, maintained and subsidized to fight the Cold War. They’ve been backing away from the Order for three decades, and they are now abandoning it wholesale. It would have happened without Trump, although probably a bit more slowly and without the…flair.

That means that everything in the global system that was predicated upon the Order will need to find a new basis for existence. Europe has two big Order-dependent things. NATO – which may well formally collapse at this week’s summit – and the European Union. There is no way that an export-based union of mutually antagonistic countries whose security is guaranteed by an outside power can survive in an environment in which those exports are impossible and the security guarantor leaves. The EU was going down anyway which means the Brits had to figure out their way in the world anyway. Brexit means they get a head start on the rest of Europe. Recent developments haven’t brought disaster, they’ve brought clarity.

Yes folks, a hard Brexit is the best-case scenario for the United Kingdom because it forces the Brits to move on now. So yes folks, a three-year depression that knocks a country’s GDP down by one-fifth is probably the best-case scenario for anyone dependent upon the Order as the world slides into Disorder.

I expect the Brits to come out of this better than nearly everyone. For two centuries they ran a globe-spanning empire that was the largest economic entity ever (at least until the Americans came of age). If there is one country that knows how to operate in a disorderly world, without continent-spanning trade pacts, where military and economic power are often fused, that has already stitched together a strategic security plan, it is the United Kingdom.

But that doesn’t mean the road from here to there won’t royally suck.

I Think They Get It Now, Part Four: The UK

Jump to other parts of this series: Intro, France, Germany, Italy, Japan, and Canada.

The United Kingdom has been the United States’ firmest and most capable ally for over a half century. As such many often think of the British Prime Minster as a sort of Washington Whisperer. The Brits, so the thinking goes, are a civilized people who can bring the oftentimes erratic Americans around to a saner course of action.

As one of the United Kingdom’s great statesmen, Winston Churchill, famously put it: “You can always count upon the Americans to do the right thing… after trying everything else.” The quote is as much an homage to the immense power of the United States, as it is to the trademark patience, dry humor and stiff upper lip of the English.

And so it is with no surprise that many world leaders have called upon British Prime Minister Theresa May to intervene on humanity’s account with U.S. President Donald Trump. But it is no surprise to me that she has done nothing of the sort. Nor will she. It is all wrapped up in why the United Kingdom is a major power in the first place.

The United Kingdom matters not simply because Great Britain is an island, or because the Kingdom has the naval power to defend its island, but because the Kingdom has sufficient naval strength to project power well beyond its island. That enables the Brits to pick the time and place of the conflicts they choose to engage in. Even if they choose poorly, they can always pack up, sail away and try again later. Clashes that leave most in ruin at most force an early election in the Kingdom.

There are only two things that could undo this strength. First, the United Kingdom’s flexible strength could be overwhelmed by a more powerful navy. Since the only Atlantic Ocean navy that is more powerful is the American Navy, this is a low risk. Second, the United Kingdom could for whatever reason find its navy degraded to the point that it can no longer project power. And that is precisely the challenge facing the United Kingdom today.

Ironically, painfully, the UK’s current naval weakness comes directly from an attempt to generate strength.

It is difficult for any student of global strategy who is not willingly blind to ignore the role played by the American supercarriers. The Nimitz class carriers are not simply the largest combatants ever floated, as a rule they pack at least seven times the combat capabilities of any rival naval vessel – including the largest carriers floated by other countries. The Nimitz ships have enabled the Americans to project power not just anywhere on any ocean or coast, but in most cases several hundred miles inland as well. Without nuclear weapons they are the most powerful conventional weapons systems any country has ever fielded, and just one of them if nuclear-armed has more firepower than the entire military of France. (No, that is not a France slam. The supers are simply that cool.) The Americans have ten of them. The combined rest of the world? Zero.

So long as the Nimitz carriers (or their soon-to-be successors in the Ford class) are the top shelf of military capacity, anyone seeking to oppose the Americans has to find a way to push the Americans at least a thousand miles away from shore (ergo why the Chinese are so heavily invested into long range anti-ship missiles). And should any naval power seek to ally with the Americans, they will always be entirely in the shadow of the massive, raw American power that the Nimitz ships provide. So long as the Americans are the only people with fully-operational supercarriers, no one but the Americans gets a vote as to how the Americans and their allies perform global strategic policy – even if you are one of the allies.

There are a lot of non-blind students of global strategy in the United Kingdom, and about two decades ago they all came to the same conclusion: if the UK is to matter at all, we must have our own supercarrier. And since, like any other vessel, ongoing refits are part of the process, we must have at least two. The end result was the launching of the Queen Elizabeth carrier program. Weighing in at 65,000 tons displacement they will be the largest combat ships ever floated with the notable exceptions of their inspirations: America’s Nimitz and Ford classes. Fully operational, they will give the Brits exactly what they are after: a seat at a table for two, the only table that matters. When the first ship of the new class started sea trials in December 2017, a veritable army of bubbly erupted at Whitehall.

Just one problem. The Brits screwed it up a little bit.

Maintaining weapons development systems over multiple decades and multiple administrations is difficult. In the time since the plans for the Queen Elizabeth class were first floated, the Brits have had a dozen elections and five prime ministers (and unless my political tea-leaf reading has gone completely off the rails, they’ll have a sixth before long). With each change of leadership there is a change in priorities, and oftentimes life rudely intervenes. Financial crises of the Asian, European and global kind have competed with the British Navy for resources. The Iraq War, the Afghan War and the Libyan intervention ruthlessly pulled British defense prerogatives away from the sea and towards land. The Joint Strike Fighter development program has gone egregiously, criminally, hilariously over budget.

At each step the Queen Elizabeth carrier program had to re-justify itself and fight for funding anew. In the process the Brits found themselves forced to mothball their existing jump carrier fleet in total in order to funnel resources to the new supercarriers’ construction effort. The Brits had to transfer their navy aircraft, pilots and flight crews to the U.S. Navy in order to maintain any hint of naval aviation capacity. And now, with Brexit looming, they’re having to slim the rest of the naval force to keep their supercarrier program on track.

Which means the Brits no longer have sufficient ships to protect their new supers once they are fully operational.

Carriers are not just massive and massively capable combatants, they also represent years if not decades of investment into equipment and personnel, and while they cannot be sunk easily, sunk they most certainly can be. As such every carrier is but the nucleus of a battle group, with all the other vessels’ primary purpose to ensure the carrier does not sink. The British Navy has atrophied so much for so long that it can no longer assemble two credible battlegroups and still defend Great Britain itself.

For the Queen Elizabeths’ deployments, this is nothing short of a Charlie Foxtrot. The new British supercarriers dare not venture further away from shore than the reach of British air power, whether that air power be launched from the United Kingdom itself or from the territory of a trusted ally. Support ships can certainly be built up more quickly (and cheaply) than the supercarriers themselves, but ships don’t grow on trees. This will be the state of the British Navy for at least a decade. Probably two.

This presents London – the naval power par excellence of earlier eras – with a galling choice:

  1. Abandon all hope of ever projecting power, and treat its shiny new supercarriers as the same sort of idiotic chest-beating paperweights the old Soviet “carrier” was,
  2. Fold its supercarriers into the Americans’ battle groups and de facto merge with the United States on all strategic policy… and hope against experience, culture and hope itself that the Americans will listen to your strategic opinions because you contributed a couple big boats.

The decision has already been made. The Brits know better than to fly solo, and they certainly know better than to fly solo against the Americans. The key memory is the 1956 Suez Crisis.

At that time the Brits were certain when the Americans said under the Bretton Woods system all the empires would be disbanded, that it didn’t apply to the British Empire. The British assault on Egypt inadvertently forced the Americans to choose between maintaining the British Empire and their own new global order. It wasn’t a hard choice. The result was strategic castration – with the Americans using all their ample political, financial and military strength to force the United Kingdom into a permanent, subservient position within the alliance that has lasted ever since.

To underline how annoyed the Americans were, they also forced the Brits to stick to the letter of the deals signed to support the United Kingdom against Nazi Germany in the early days of World War II before the Americans themselves were involved. The terms of such loans were so onerous that the Brits didn’t finish paying them off until the 2000s.

And so the Brits have no choice but to stiffen that lip and march forward into the very much known.

  • They will seek a direct bilateral trade deal with the Americans in order to replace the European Union at the core of their economic strategy. It may have fewer regulations, but it won’t enable the United Kingdom to be as wealthy as they have been, and the Americans will offer few concessions because the Brits are economically and strategically without options.
  • They will surrender the financial centrality of London to New York City either as part of the trade negotiations in the hopes they can glean a few concessions on other topics, or because without a firm Brexit deal the financial sector will up and leave London anyway.
  • Should the Trump administration manage to extract a final NAFTA deal from the chaos of the current negotiations, the Brits will grudgingly sign on knowing full well that direct competition from Mexico will do to the United Kingdom what Team Trump says Mexico has done to the United States. The alternative is to be a forgotten side deal only tenuously linked to the American market.
  • And no matter what military adventure the Americans go on, the Brits will be there. They know better than anyone it is far better to be in the Americans’ shadow than in the Americans’ way.

Put simply: what Trump wants, Trump gets. It’s that simple, because if the goal is security and stability for the British people, there is no other option.

This might sound humbling, horrible even. But it really is not. So the Brits don’t matter strategically on their own. They are still safe. They are still wealthy. With the world crumbling down there are worse sides of history to be on than being an adjunct to the Americans. And isn’t it the fate – if perhaps not the goal – of most parents to eventually move in with the kids?