The Economist

20 Britain The EconomistAugust 4th 2018

2 Kent. Unilateral free trade would ravage

British farming and manufacturing. And

one-way free trade does not help lorry

drivers who must return fully laden.

No deal also means a hard Irish border.

Again Brexiteers say London and Dublin

could agree not to have one. But with no

deal that would be illegal under the EU’s

own rules as well as those of the WTO.

Agrifoods which account for most of the

trade across the border would be badly af-

fected. As well as tariffs EU food-safety

checks would have to be applied to avoid

Northern Ireland becoming an open con-

duit to evade them. A hard border would

rattle the delicate peace process.

Then there are British firms’ supply

chains. These are now widely spread

across the single market. Supermarkets

and carmakers alike rely on just-in-time

deliveries that would be disrupted by a no-

deal Brexit. Switching to non-EUsources

would take time and money. So would

stockpiling supplies which for most busi-

nesses is impractical (see box).

Regulatory obstacles would be even

worse. A no-deal Brexit would take Britain

out of all the EU’s agencies as well as its

courts. Brexiteers may welcome this but

setting up alternatives would take years.

The EUis clear that trade in goods like

chemicals pharmaceuticals or cars de-

pends on Britain meeting its standards.

Britain’s car industry which employs

800000 people and exports 80% of its out-

put is especially vulnerable as it would

lose EUcertification for vehicles as well as

facing 10% tariffs.

There are no domesticregulators to re-

place the European Medicines Agency and

the European Aviation Safety Agency

(EASA). The first would stop drug exports

but also imports like insulin that may re-

quire re-testing. Radio-isotopes needed for

cancer treatments could not be imported

after Britain leaves Euratom. Outside

EASA airlines could not fly within Europe.

Rules requiring majority EU ownership

could cause problems for airlines such as

British Airways.

The list goes on. A priority for Brexiteers

is to stop free movement ofEUcitizens. But

shortages of border guards and the lack of

any registration system will make this im-

possible for many months. So free move-

ment would be likely to continue even

after a no-deal Brexit says Joe Owen of the

Institute for Government a think-tank. Se-

curity co-operation would also suffer as

Britain fell out of the European Arrest War-

rant and intelligence databases.

Brexiteers may call this Project Fear 2.0

but the evidence is against them. Market

confidence would suffer. John Springford

of the Centre for European Reform a think-

tank says a no-deal Brexit would trigger

both a recession and a run on the pound.

No deal is not a serious option even if to-

day’s febrile politics pretends it is. 7

The economics of stockpiling

Prepping for Brexit

B

REXITEERS said that leaving theEU

would lead Britain to a land flowing

with milk and honey. But as worries of a

no-deal Brexit mount the country is

instead talking of hoarding emergency

rations. Google searches for the word

“stockpile” have jumped in the past

week approaching the all-time high seen

shortly after the referendum of June 2016.

Some countries could just about cope

if their borders were closed to imports at

least in the short term. Britain is not one

of them. Imports and exports are worth

over 60% of British GDP twice America’s

level. Half of Britain’s food comes from

abroad most passing through EUports.

The Brexit secretary has promised not

entirely reassuringly that there will be

“adequate food” whatever happens; the

health secretary has said the NHSis

preparing to stockpile medicine. Yet it is

not clear that enough is being done to

honour these pledges. Britain spends

some £50bn ($66bn) a year on medicine

and non-perishable food from the EU. So

stocking up with enough for justa month

would cost around £4bn—more than the

entire no-deal planning budget of £3bn

set aside in November. Nor is there any

sign that reserves are being built up. Food

and medicine imports have been steady

in recent months.

Companies many of whose manufac-

turing methods rely on raw materials and

components zipping between produc-

tion facilities in different countries are

also talking about stockpiling. Airbus

says it has asked its suppliers to start

“ramping up” their stock of components

for its aeroplanes. Pharmaceutical firms

including AstraZeneca Novartis and

Sanofi have said that they will increase

their inventories.

Yet the hoarders seem to be in the

minority. Take JJChurchill a supplier of

turbine blades to the aviation industry.

The firm held a board meeting on July 31st

to discuss whether to stockpile parts and

decided against as it would tie up too

much working capital. Andrew Chur-

chill the executive chairman argues that

the fog of Brexit makes it unclear which

parts are vulnerable to disruption.

Economy-wide data reveal little evi-

dence of firms preparing for “no deal”.

Firms’ stocks of inventories are if any-

thing falling. Our analysis of over 5

categories of goods shows that imports

of parts raw materials and machinery—

“capital” and “intermediate” goods in

the jargon—are in fact declining. That is

consistent with a nervousness about the

future though of a different sort. It could

suggest that bosses are worried about the

strength of demand after Brexit and may

therefore be trimming investment in

future production.

If Brexit day approaches with no deal

in sight companies and the government

may decide that stockpiling is unavoid-

able. At that point they would face a

problem: a shortage of warehousing.

Vacancy rates are already low thanks in

part to the expansion of e-tailers such as

Amazon. And stockpiling would require

a huge amount of space. Britain guzzles

3bn litres of imported booze every year.

A month’s supply would be enough to fill

100 Olympic-sized swimming pools.

Better start digging.

Stockpiling is the talk of the country but is anyone actually doing it?