Uncertainty continues in 2019 with tariffs and Brexit

ANDY JALIL -
andyjalil@aol.com -

All indications are that the uncertainty, caused primarily by Brexit, will continue into this year and it will become pretty much global. On the political scene, headline events range from US-China trade tensions, to Brexit, to EU reforms — all coming at a vulnerable period in the business sector, with half of US chief financial officers expecting a recession in 2019, and over 80 per cent by 2020.
Starting with the UK, there is considerable uncertainty about whether parliament will pass the Prime Minister Theresa May’s Brexit withdrawal agreement now due to be voted on.
Having withdrawn the vote once already last month due to an anticipated defeat in the House of Commons and with May unable to extract sufficient reassurances from the European Union, there is a chance that it may still be voted down.
If that happens, the options look very limited. There won’t be much time to renegotiate — even if the EU agrees to it — before March 29, when the UK leaves the Union. The EU has indicated that it would be open to extending the departure date by three months, but even with an extension, there wouldn’t be much time. Therefore, other options have been discussed, including a deal on a version of the Norway model or even a second referendum.
These options come with their own uncertainty. Parliament has already voted against a no-deal outcome and if a second referendum is held, despite the Prime Minister being against it, there is no guarantee that it would resolve the Brexit issue.
Should May’s withdrawal agreement pass, the countdown would begin to December 2020, which marks the end of the transition period.
That would mean less uncertainty later on this year, but there would still be questions over the nature of the future EU trade deal and agreeing on a solution to prevent a hard border with Ireland which is a major issue, deeply affecting Ireland and Britain.
Over and above such uncertainty on a deal between the UK and the EU, the first quarter of the year will see either efforts towards a US-China trade deal, or 25 per cent tariffs on all Chinese imports into the US, matched by likely retaliation from China.
Professor of economics at London Business School, Linda Yueh, points out the issue isn’t just tariffs being imposed by the world’s biggest economies that will raise global prices and affect the rest of the world.
Supply chains could be distorted as businesses seek to avoid political fall-out and make less efficient decisions. Surprisingly, business deals seem to be among the less-discussed casualties of the US-China trade war.
In July 2018, China scuppered a $44bn deal between US tech company Qualcomm and Dutch chipmaker NXP — a decision which, it is suspected, may have been linked to the ongoing tensions between the Chinese government and US President Donald Trump. President Xi Jinping offered to look again at the deal as part of his rapprochement with Trump, but Qualcomm said the deal was dead and had already paid a $2bn break-up fee. This incident may well give pause to other business deals.
According to Yueh, a deal can be struck fairly quickly if China opens up its market, particularly for services. That should increase American exports, since the US is the world’s largest exporter of services, and help the Chinese economy as well, as China had been contemplating introducing more foreign players into its services sector to increase competition.
Looking at the EU, there is uncertainty there too. While Italy has its budgets deficit to deal with, France was running afoul of EU budget rules after giving in to concessions with the “yellow vest” protests although the protests have since continued. In addition, President Emmanuel Macron’s proposed EU reforms to create a central fiscal authority have stalled. And Hungary is backing an alliance of anti-immigration EU nations. Victor Orban, the Hungarian prime minister, endorsed fellow anti-immigrant European governments and criticised France and Germany.
Speaking at a news conference, he gave full support to an Italian-Polish initiative to form a Right-wing alliance for European Parliament elections due in May, in which he wants anti-immigration parties to gain a majority. The elections may send a signal about the future direction of the EU, but until then, with such uncertainty all around, for 2019, it’s difficult to make any firm predictions. (The author is our foreign correspondent based in the UK. He can be reached at andyjalil@aol.com)