Deal or no deal? How Johnson’s Brexit gamble raises trade risks

“I will not back down,” Prime Minister Boris Johnson said, as he delivered his latest threat to walk away from Brexit talks without a new trade deal.

For economists, business leaders and European Union officials, the question is whether to believe him. There are plenty of reasons why they should, despite the political dangers for Johnson of worsening the already severe economic damage the U.K. faces from the coronavirus pandemic.

First, for Johnson, Brexit is personal. He led the campaign to exit the EU in 2016, then won a big majority to deliver Brexit in last December’s election. Completing the process and taking Britain out of the EU’s legal orbit at the end of the transition period in December would be his legacy.

Second, he likes a gamble, and some of his biggest bets have paid off. He agonized over whether to back Brexit in defiance of his party leader David Cameron, only to win and find himself in the Cabinet as Foreign Secretary.

Then he walked out of Theresa May’s government in 2018 when he felt she was betraying his vision of what Brexit means. After Johnson spent a year in the wilderness, euro-skeptic Tories ousted May and made him prime minister.

His warnings this week are those of a Brexit purist, and may not simply be a negotiating tactic. There can be no compromise on the “fundamentals” of Brexit — giving the U.K. control again over its own borders and lawmaking, he said.

Thirdly, while Johnson did back down to reach a breakthrough with Ireland’s Leo Varadkar in the exit talks last year, he was operating in a different political context: then, he couldn’t have forced a no-deal Brexit through Parliament. Now, Johnson has a majority of 80 in the House of Commons, and all his MPs have signed up to delivering the split with the bloc. He can more or less do what he likes.

The fourth reason why Johnson might just go for a no-deal split, aside from wanting to avoid any further delays, is that Brexit is not at the center of political debate in the way it was last year. The coronavirus pandemic — and the government’s mishandling of its response — have become far bigger concerns for both voters and politicians.

Deepest Recession

The U.K. has already been grappling with the deepest recession of any major economy, and a resurgence in the disease is likely to coincide with a huge rise in unemployment. That is where votes will be won and lost.

Walking away from the bloc’s single market and customs union without a deal on Dec. 31 would leave businesses facing costly quotas and tariffs on goods as the country defaulted to trading on terms set by the World Trade Organization.

But the prime minister could still seek to re-open negotiations at a later date to secure a better deal.

“Our door will never be closed,” Johnson said. “We will of, course, always be ready to talk to our EU friends even in these circumstances.”

Johnson believes he has the freedom to be flexible. He says he wants a deal. His officials insist he does, too, and there are still almost four months to go before the real deadline at the end of the year.

The leak of government plans to dilute parts of the Brexit withdrawal agreement sparked muted warnings from Brussels on Monday and private dismay from EU officials. There cannot be a trade deal if Johnson breaks his promises on the earlier divorce accord, the EU said.

In London, the premier’s team showed they wanted to contain the damage. Officials worked hard on Monday to explain their thinking and play down any threat to the carefully crafted exit agreement.

After all, Johnson is a politician who loves to be loved. During a summer in which public pressure forced him to reverse plans repeatedly — on issues including exam grading, wearing face masks, and local lockdowns — Johnson has shown how much he cares about staying popular.

Opinion polls are studied closely in his Downing Street office. Currently they show only limited backing for leaving without a deal. Only a quarter of voters think that would be, as Johnson says, a “good outcome,” according to YouGov. Half say such a result would be “bad” or “very bad.”

How that sentiment shifts, or not, over the next four months may give the strongest clue to whether Johnson will change his mind.