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ARP Observations

Brexit, our latest view

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In the UK, in the ongoing Brexit debate, national pride rules over economic logic now. “18,000 jobs will be lost in Germany, if we don’t buy their cars anymore”, the media now scream whilst suggesting UK negotiators should just walk away from the divorce negotiations, such is the anger. To make matters worse, (most) people take it at face value, which has created an atmosphere of extreme anti-EU sentiment that now borders on outright hostility.

I am not going to argue against the suggestion that 18,000 German jobs could be lost, because that could very well be correct, but what about the hundreds of thousands of jobs that will almost certainly be lost in the UK? Let me share a few numbers with you (Source: Office for National Statistics).

About 3 million people work in the UK manufacturing industry and a further 1.2 million in financial services. Those two industries will be by far the most severely impacted, should we end up with no trade agreement, although one shouldn’t ignore the negative impact no agreement would have on the construction industry, and that employs 2.4 million people.

The chart below is frequently used by the anti-EU brigade to make the point that no trade agreement would be far worse for them than it would for us. Whilst correct that the UK is a net importer from almost all EU countries (as you can see), that fact is entirely irrelevant as far as job security is concerned. What matters there is the extent of the damage to the industries in question that no agreement would inflict, and on that account the UK stands to suffer a great deal more than the EU.

‍Exhibit 1: UK trade with other EU countries
Exhibit 1: UK trade with other EU countries
Source: fullfact.org

This year, a very modest 6% of total EU exports have gone to the UK (Jan-Sep 2017), whereas a massive 48% of UK exports have gone to other EU countries (source: Eurostat). Where do you think most jobs will be lost (as a % of the workforce) if there is no trade agreement going forward? I certainly know, and so do others, but nobody dares to mention that for the fear of being deemed unpatriotic.

About the Author

Niels Clemen Jensen founded Absolute Return Partners in 2002 and is Chief Investment Officer. He has over 30 years of investment banking and investment management experience and is author of The Absolute Return Letter.