Britain’s weak negotiating position in Europe

As we draw closer to the UK’s referendum on leaving the EU, the economic arguments for and against Brexit are becoming clearer.  A favourite europhile argument is that half our exports go to the EU, and we mustn’t jeopardise that trade by leaving the single market.  The eurosceptics have a very compelling response, brilliant in its simplicity:

We buy more from the rest of the EU than the EU buys from us (think of all those BMWs and bottles of French wine), so the EU will want to maintain the same free trade relationship with us even if we leave.

This makes complete sense.  It suggests we hold the stronger negotiating position thanks to our EU imports.  It’s an easily understood truth that is regularly deployed by Nigel Farage and other eurosceptics.

But as the Economist points out this week, there is a competing truth to consider:

The EU takes almost half of British exports, whereas Britain takes less than 10% of the EU’s.

Now who has the power?

The first truth refers to the absolute value of our imports and exports; but the more relevant truth, as far as a negotiation is concerned, is the relative importance of those imports and exports to each party.  Bluntly, the EU is an awful lot bigger than the UK, and isn’t going to care nearly so much if trade breaks down.  Of course, it’s in everyone’s interest to maintain free trade, but if other factors complicate EU calculations – such as our general awkwardness – then the EU is much better placed to walk away from the negotiating table than we are.

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