These past weeks, I have heard a lot from EU leaders and chief executives of large companies in the region. No wonder. It’s no surprise that they have had to deal with the events in Ukraine, the transformation of their energy supply lines and the possibility of knock-on consequences, such as possible recession.
However, I discovered that many people were also anticipating a significant deterioration of trade relations with the UK if the UK unilaterally changes the Brexit deal in relation to Northern Ireland and if those moves have been deemed illegal.
Herbert Deiss is the chief executive at Volkswagen, Europe’s largest carmaker. He told me that he had recently held high-level discussions with the British ambassador in Berlin about the possibility for a trade war.
“There is a lot going on in communication. He also said that there was a dependency. “We have a British brand called Bentley which is doing very well. Also, the UK is our largest export market for premium brands like VW and Audi. So I believe there will be a mutual interest to keep [trade] open.
However, while everyone wants it, there is a quiet realization that they might not get what they want.
One European leader was asked recently if they believed that Northern Ireland’s problems could lead to a trade conflict. He curtly replied “yes”. This leader was shocked that the practical solution, which had been agreed between both sides, could be torn up. The perception is that trade wars can do “harm to your nation” and are primarily caused by internal party politics rather than substantive concerns regarding Northern Ireland.
Mateusz Morawiecki (Polish Prime Minister) told me that trade wars were a “lose-lose” situation. He also suggested that the main antagonism he was trying find compromises was between Paris, London.
He stated that he would try to ease the tension between France and Britain as much as possible because he believes only Putin and his enemies will be content with another disagreement between close partners like the United Kingdom or the European Union.
Micheal Martin, the Irish Taoiseach, said that such a fate could be avoided as a trade war is “unnecessary” and “shocking”.
When I asked Martin if the EU was creating lists of UK goods against whom to levy tariffs he replied: “We don’t want to get into any detail about that. Because hopefully, that’s not something we ever have to contemplate.” As for now, I am simply saying and repeating what I have always said, “Get down there, get in the tunnel, UK government, EU, negotiate, and get the technocrats there.”
Over the next weeks, Irish diplomats have been walking Europe’s corridors, warning of what they consider a “low point” in EU-UK relations. They say Berlin and Paris will respond with a strong response.
Behind the scenes, there is always work going on.
Recent trade wars between the US and the EU, for example, saw the EU (with the UK being a member at the time) focus on retaliation against the most political of pressure points – Harley Davidson motorcycles, Levi jeans, Jack Daniel’s whisky and Florida’s Orange Juice.
The US then focused on the UK’s famed exports of whisky and cashmere. They were all deliberately selected to maximize political pressure and headaches in swing states. Similar processes could be used for the UK to focus on exports of cars from the North East, fishing, and agricultural exports.
There is also the question of whether or not the UK will reply in kind. Jacob Rees Mogg, Brexit opportunities minister, described the idea that the EU would levy duties as “acts of self harm”. A trade war could worsen the situation for both the UK and EU, which are both suffering from low growth and high levels of inflation.
As Mr Deiss stated, British diplomats have met with German automakers in order to defend their interests. This suggests that there may be a fear of tit for tat tariffs being imposed on them.
European leaders are quietly getting in gear but they must agree on the scope and level of any retaliatory actions. Although none of these are certain, business groups worry that even the threat of such a process could deter investment. There is no doubt that the process of escalation has begun.
