For better and for worse, Great Britain and the United States have navigated for centuries what leaders of both countries call a “special relationship,” one that dates to the American colonial era, survived a bitterly contested revolution, and grew stronger during two world wars.
From that perspective, it seems less like a fluke that their respective governments have recently found themselves contending with economically damaging stalemates, both of which have their roots in the unexpected outcomes of elections two years ago.
In the U.S., a partial government shutdown left 800,000 workers without pay for more than a month and shaved $1.2 billion a week from U.S. growth before coming to at least a temporary end when House Democrats struck a deal with President Trump on Jan. 25 to pay for three weeks of operations while negotiating border security. The shutdown began in late December, when Trump refused to sign any government-funding bill that didn’t include $5.7 billion for a wall between the U.S. and Mexico.
Britain’s Parliament, meanwhile, is grappling with the fallout of a referendum roughly four months before Trump’s election in which voters decided to pull out of the European Union, a trading bloc in which the country had become an integral member after its overtures were twice rejected by then-French President Charles de Gaulle. The group had subsequently granted any member the right to bow out under Article 50 of its Treaty of Lisbon, a governing document.
The unpopular agreement negotiated by Prime Minister Theresa May on the terms of Britain’s withdrawal, however, failed 432-202 in a House of Commons vote earlier this month, spurring renewed concern that Britain will be economically crippled by leaving without a deal and spurring calls for a second referendum.
While members of both May’s Conservative Party and the opposition Labour Party want the government to eliminate the possibility of a no-deal exit, “we have to be honest with the British people about what that means,” she told the House after barely surviving a no-confidence vote.
“The right way to rule out ‘no-deal’ is for the House to approve a deal with the European Union, and that is what the government is seeking to achieve,” May argued. “The only other guaranteed way to avoid a no-deal Brexit is to revoke Article 50, which would mean staying in the EU.”
While Britain has the right, for now, to change its mind about leaving — an outcome that would be welcome to both Wall Street investors and multinational corporations doing business in the country — May has so far dismissed the possibility.
“I have set out many times my deep concerns about returning to the British people for a second referendum,” an idea that has drawn increasing support, May said. “Our duty is to implement the first one.”
In the meantime, questions about the terms of Brexit are affecting currency exchange rates and investor confidence, said Tony Magee, a former barrister in Britain’s Chancery Court who’s now a trial attorney in Dallas.
If the country leaves without an EU trade agreement, the Bank of England has projected unemployment there might surge to 7.5 percent, just 50 basis points below its peak during the 2008 financial crisis, while home prices drop 30 percent and immigration shifts from a net gain of 250,000 people a year to a net loss of 100,000.
Such a scenario might also encourage American companies to prioritize business in Europe, a larger market, said Magee, who’s nonetheless dubious about the prospects of a second referendum.
While such votes are common in the U.S. — particularly in California, where they have a long and colorful history — they’re comparatively rare in the U.K.
Magee told the Washington Examiner he can recall only two in his lifetime, one in the early 1970s when British voters approved joining the European Economic Community, a predecessor to the EU, and the other in 2016, when they opted to leave.
Still, “this is a situation that I think isn’t about a retrial or a repeat,” David Milliband, who served as environment secretary and foreign secretary in two Labour governments in the mid-2000s, said in an interview on NPR’s Morning Edition. Britain — known for its pragmatism and the effectiveness of its parliamentary government — should be able to take the long view and reconsider, given the stakes, he said.
“There are also bigger questions here about how countries like Britain — after all, you’re going through your own trauma of the shutdown yourself — there are big questions here about how the leading Western, liberal democracies show that democratic systems of government can mobilize the wisdom of crowds and not fall foul of the screams of the mob,” he said.
Among the key arguments from supporters of a second Brexit vote is that “the electorate was not really well-informed when it made the decision to leave,” said Magee, and the government should seek more clarity “now that everybody has had two or three years to see the fallout and see what the EU is going to expect from Britain.”
One of the most challenging obstacles May must negotiate is the border between Northern Ireland, which is a part of the U.K., and the rest of Ireland, which isn’t and would remain in the European trading bloc.
The so-called soft border that exists today is a result of the Good Friday Agreement of 1998, which ended a long and bloody conflict between nationalists who wanted a unified Ireland and unionists in Northern Ireland who wanted to stick with the U.K.
Brexit shakes up that status quo by creating the need for a stronger delineation of the 310-mile border in order to enforce separate trade agreements set up by the U.K. and the EU in the future.
“What we’ve found in Britain is a lot of companies are getting very nervous,” Magee said. “Some of them have started moving operations into Europe in anticipation of it being more difficult to do business in Britain once the exit happens.”
More than 3,000 miles away, another border and the debate over how to secure it is at the heart of a partisan debate that prompted not only the partial shutdown of the U.S. government but led House Speaker Nancy Pelosi, D-Calif., to delay the State of the Union address that she had previously invited President Trump to give on Jan. 29.
The barrier, which Trump once said Mexico would pay for, was a signature promise of the 2016 campaign in which he won an unexpected but decisive Electoral College victory while losing the popular vote by a margin of about 3 million. It has been a bone of contention ever since, with Trump and his supporters arguing a barrier is vital to U.S. border security and many Democrats dismissing it as racist and wasteful.
As of the week ending Jan. 25, the shutdown had slashed more from U.S. growth than the $5.7 billion Trump was requesting. As unpaid government workers scrambled to cover their bills, approvals of new prescription medicines by the Food and Drug Administration were delayed and reviews of planned corporate mergers and stock offerings by the Securities and Exchange Commission were sidelined.
Even craft brewers were affected, with businesses unable to obtain Treasury Department approvals needed to sell new beers across state lines.
“The economic cost of the shutdown will accelerate the longer it continues,” Mark Haefele, a senior economist for the Americas with UBS Wealth Management, warned prior to the three-week truce. He likened the situation to a film he once saw about a Formula One racing team testing new engines by running them at full throttle until the heat caused the most fragile part to break.
“We are now running a similar experiment on the economy,” he said. “It is difficult to predict what part will break first, but you can already smell the smoke.”
