The real Brexit question: What does it mean for America?

The real Brexit question: What does it mean for America?
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Consumed by the bizarre quality of our own politics, Americans understandably enjoy reading — and being distracted by — our British cousins’ ability to behave even more oddly. Speaker John Bercow’s bellowing the Westminster Parliament to order as it struggles with Brexit is profoundly entertaining, and the United Kingdom’s inability to govern itself makes us feel better about our own political condition.

With the colorful Boris Johnson’s emergence as the lead actor in what may be the final scene in this play, his antics captivate us even more. As Johnson pursues his international game of chicken with the EU, his own country’s cohesion, and the UK constitution, the daily drama becomes ever more intense.

Nonetheless, our vicarious schadenfreude over UK politics, our boning up on the cast of characters that comprise the UK political scene, and our study of the “backstop,” and the fact that it’s needed to maintain peace on the island of Ireland, has obscured our real interest.

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For us, how the UK works — or doesn’t work — is colossally entertaining, but what’s important for us is not ‘What does Brexit mean for the United Kingdom of Great Britain and Northern Ireland and the 27 members of the European Union?’  What’s important for us is ‘What does it mean for the United States?’ And, fascinated and distracted by British political theatre, we haven’t reflected very much on that.

While Brexit certainly doesn’t pose the risks to Americans that it does to Britons and Europeans, it does pose risks and leaves us worse off. How?

The United States needs friends.

We are the world’s dominant power, but we wield our power, by and large, through our persuasion and attraction as a leader — not by fiat or force. In that soft power competition, the UK has proven a force multiplier for us, especially within the councils of the EU. And while we much prefer diplomacy, every three-to-five years, on average, the U.S. finds itself engaged in a military conflict. Since the end of the Cold War, whenever the U.S. needed help in armed conflict or its aftermath, the UK was at the top of our list of willing and capable friends. To round out the top ten of countries to whom we could turn, at least half would be other European Union members.

When that next event comes around, the UK and the EU, at best, will be internally distracted. At worst, they will be, and need to be, so totally focused on their own challenges — political and economic — they can’t possibly help us, certainly not in the ways we have come to expect.

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Canada, Japan, Australia, the ROK and a few others can still pitch in, but they can’t possibly fill the void.

What will continue?

Our intelligence cooperation, especially signals intelligence, will continue largely unabated. And our military cooperation — the exchange of personnel, joint planning, and joint training — will continue as well, so that interoperability can be maintained. But over time, even that will erode — not due to a lack of will, but because of political preoccupation and a continuing erosion of resources. 

Even today, while the UK remains our most capable military partner, just the increase in the U.S. military budget last year exceeds the entire annual UK military’s budget.

What is illusory?

Just as with most of the promises from the “leavers,” the promises concerning economic benefits to the U.S. from an unbound UK are also smoke and mirrors. Even if Ambassador Woody Johnson convinces Her Majesty’s Government that our chlorine-washed chickens and genetically modified grains and tomatoes are harmless — and he might — UK consumers are unlikely to agree. And even if they do, their demand for U.S. agricultural products is too small to really make much difference.

The “unbound” UK economy, even if it meets the “leavers” wildest expectations, will prove a net negative for the U.S. Why? Because the UK market pales in comparison to the EU as a whole, and U.S. firms — financial as well as industrial — have found the UK to be the great launching pad and favored headquarters site for the EU market as a whole, not for the relatively smaller UK market. 

With Brexit, that all goes away. Insurance to Luxembourg. Finance to Dublin, Paris, Frankfurt and Amsterdam. Industry to whatever location is close to its customers and has the infrastructure to support an English-speaking expat community. All of that will make U.S. firms worse off.

Moreover, the costly U.S. investment in the UK — particularly that of the U.S. financial industry — will wither over time. Yes, there are songs of continuity now: The derivatives market will stay; the UK has unique capabilities in its courts and markets; the English-language advantage is hard to match — even the time zone advantage of doing business in New York and Hong Kong in the same day. All of that will remain true.

But as the UK financial industry shrinks due to its loss of member-access to the EU market, the ugly lessons of the Great Recession will become more apparent. No, the UK won’t become Iceland… but what counterparty won’t start to think about the UK’s declining taxing power as the UK’s economy and financial industry shrinks? If the Great Recession taught us nothing else, it taught us that an economy with taxing power big enough to save its financial sector and a government willing to use the big guns of its central bank was the sine qua non for saving those banks and their foolish commitments. When the next recession appears on the horizon and capital grows fearful, borrowers, lenders, and counterparties will certainly remember.

So, does the U.S. face tragedy on the Brexit horizon? Nope. But five to ten months, years, and decades from now, we will look back at the UK’s self-inflicted wounds as an inflection point that left America worse off and damaged our most important partner.

David T. Johnson is a retired American diplomat who served as Deputy Chief of Mission at the U.S. Embassy in London from 2003 to 2005. He also served as Assistant Secretary of State for International Narcotics and Law Enforcement Affairs, U.S. Dept. of State Coordinator for Afghanistan, U.S. Ambassador to the Organization for Security and Co-operation in Europe, and spokesman for the National Security Council. He currently serves: as president of SwanJohnson, LLC, a consulting firm; vice president of the International Narcotics Control Board; and as senior advisor to Avascent International, a strategy and management consulting firm.