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Op-Ed: Brexit and Trump—Are They Similarly Bad for Business?

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Brexit and the Trump Revolution are often linked. What really unites them is the extraordinarily uncommercial attitude many of their politicians are taking to what real businesses want. But really, they differ on so much.

On foreign trade, for one, they’re practically polar opposites.

Even among those supporting the United Kingdom Independence Party (UKIP) which started the campaign to leave the EU, 78 percent believe it is important to “allow companies based in the EU to sell goods and services freely in Britain in return for allowing British companies to sell goods and services freely in the EU.” Among voters for the ruling Conservative party, support for EU free trade is 93 percent.

This is higher than the support among any US demographic or voter group for NAFTA.

Two philosophies united by confused rhetoric

Where supporters of Trump and Brexit do appear to agree, though, seems to be over regulation. Or more precisely, over-regulation.

“Take back control” the Brexiteers have been saying for the past year, citing “unnecessary” regulation they claimed the EU was imposing on them, and the unnecessary costs imposed on businesses and consumers by the rule-making obsessions of Brussels bureaucrats.

Substitute Washington for Brussels, and many Brexit speeches and papers can be—indeed, often are—recycled seamlessly by Trump and his team.

Both, though, also share extraordinary naivety about how regulations actually work.

Brexit’s dirty little secret: lots more government snooping

About 4.5 million trucks cross Britain’s borders every year. Just 1 percent of them need customs clearance. After Brexit process is completed in spring 2019, every single one of those trucks will need clearance into the U.K.

Add in exports and goods going through seaports and airports, and most estimates agree that Britain’s Customs officials, which currently handle 65 million commercial customs declarations a year, will have to handle close to 400 million declarations when the U.K. leaves the E.U.

The government is coy about how much extra staff it’ll have to hire, but the freight handling industry is incandescent about how much extra cost all that form-filling and inspection will pass onto businesses.

U.K. Customs is putting its faith in technology. They believe the key is electronic pre-clearance, with algorithms calculating which trucks need to be taken aside for inspection, based on scientific calculations of risk exposure. They believe that, in practice, somewhere between 5 percent and 10 percent of shipments will be called for physical inspection, and are confident software to process all of that can be upgraded and the goods delivered on time.

But few share their confidence

That’s still around 20-40 million more physical inspections than happen right now, so hardly anyone in a trade-dependent business shares Customs’ confidence:

  • The UK government’s record in delivering big data projects on time, on budget, is appalling.
  • No one has any idea how long inspections will take.
  • There’s no queuing room in Britain’s chronically congested ports.
  • There are no published plans for more staff
  • Half the U.K.’s exports go to its EU partners, so currently don’t get inspected. If we’re suspicious of how likely U.K. Customs is to upgrade its systems on time, we’re 10 times as leery about the French. Why should they put themselves out to help Brits export?

Late in March, U.K. Customs admitted, “Any form of customs controls will increase the costs to businesses and consumers of imported and exported products. These costs can be both financial and measured in time/delays.”

Britain’s independent government IT auditor downgraded the likelihood the software upgrade would be on time to an “amber/red status” earlier this year, meaning its timely delivery is “in doubt,” posing “major risks.” The chairman of the Parliamentary committee overseeing Customs announced on March 31 that his “confidence had collapsed” in the new IT system altogether.

Is the Trump team any better?

Well, I thought they would be. Trump makes great play with the business experience of his top team.

In a meeting last month between then Acting U..S Customs and Border Protection Commissioner Kevin McAleenan and his department’s Commercial Customs Operations Advisory Committee (COAC), McAleenan said U.S. Customs’ major priority now is to tighten up U.S. Customs enforcement. He also argued that some of Trump’s proposed programs would save money for importers. There was no sign of any Customs interest in taking the facilitation of international trade as seriously as raising money and discouraging imports.

Do fewer rules help importers?

The U.S. Harmonized Tariff Schedule, the key source for the government rules importers must follow, is stuffed with more obscure rules than its equivalent in the EU, Japan, Canada or Australia.

But here’s the odd thing: each of those rules is there because some U.S. business, at some stage, argued for it, either to protect itself from foreign imports or to give itself a competitive advantage of lower prices.

Indeed, in many cases, they’re the result of lobbying by people now, or soon to be on Trump’s team. Especially those rules relating to the steel industry, which links Commerce Secretary Wilbur Ross, U.S. Trade Representative-designate Robert Lighthizer, Acting United States Trade Representative Stephen Vaughn and Commerce Undersecretary Gilbert Kaplan.

Any corresponding reduction in Customs rules, at a time officials are under pressure for more vigorous enforcement, risks reducing ways traders can legally avoid duties and penalties.

Are these the cost savings importers want?

The World Economic Forum ranks the U.S. poorly among developed countries for the quality of its Customs service, though, at No. 17, it does just beat France. The U.S. ranks between Montenegro and Brazil for the costs importers have to bear, and behind Rwanda and Chile for the speed with which goods pass through Customs.

At the March COAC meeting, trade representatives were very clear about what they wanted from a Customs service: efficiency. And not from fewer rules, but by:

  • Relying more on electronic payments
  • Providing traders and its own staff with better documentation, training, and procedures.
  • Giving Customs staff expertise in the categories they were handling
  • Automation and innovation.
  • Faster Customs decisions

All of the aforementioned need government funds to develop new systems. And trained staff to manage their development and efficient operation. And this at a time when the Trump Administration was looking for 10 percent cuts in almost all non-military Federal expenditure. With the Republicans’ abolition of Obamacare abandoned for now, pressure on Federal budgets is going to grow even greater.

 

Can you upgrade government IT while cutting public expenditure?

In Britain, we have an effective “one new rule for every three abolished” policy. It works because it gives government departments incentives to ensure the cost of rules is less than their financial benefits. It doesn’t simply count the number of rules—a silly publicity stunt hiding failure to improve government efficiency. Just slashing rules to meet a numbers target can easily worsen the service that businesses and citizens receive for their taxes, and push extra costs onto taxpayers.

It’s tempting to put this down to inexperience. In Britain, I can’t find a single politician or full-time official on U.K. Prime Minister Theresa May’s team with any experience of the practicalities of making things. In President Trump’s team, there are lots of people from business, but their experience is in financial engineering on Wall St., or in keeping out foreign steel imports.

But there’s also a destructive element to this “let’s make life difficult for real businesses” trend on both sides of the Atlantic.

Like Soviet-era revolutionaries, the kamikaze wings of Brexit and the Trump revolution are so locked into hatred of the regime they think they’ve overthrown that they are incapable of seeing the economic damage their over-simplified solutions will cause.

Real business must turn opposition to this commercial suicide away from nostalgic arguments about how wonderful TPP would have been. The kamikazes are trying to kill our businesses—and far too few politicians seem to understand.

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