Security is as critical as trade in the next stage of Brexit talks

After the adversarial rhetoric of the last few months, the agreement on Friday for a Christmas ceasefire between the UK and the EU is to be welcomed.

Brexit talks are finally going to move beyond the basic mechanics of the exit agreement.

It is the first stage in the healing process: even Donald Tusk and Jean-Claude Juncker now accept that the UK is leaving the EU. The ultimate pragmatism of both sides in drafting the document makes that self-evident. It is time to move on.

However, while this progress might help to calm business nerves in the UK, and may quieten the bellicose language from both Remainers and Brexiteers for the time being, this is only the beginning.

The assumption now is that the EU and the UK can move on to trade talks. This is misleading. The next step is actually about our future relationship with the EU, and this is much bigger than trade.

Trade is being used, on both sides, as a coercive tool for exerting power and strategic influence over the negotiations. In a meeting of French, German and UK politicians, academics and businesses leaders a few weeks ago, someone asked, “why are we all suddenly so interested in trade? It used to be in the backwaters of economics and politics and now it is the only thing we think about.”

The reason is simple: trade is being weaponised.

Trade is weaponised literally, through the increased component of dual-use goods – that is, products and technology that can be used both for civilian and military purposes – in the structure of goods trade in the G20 economies. It is weaponised figuratively, through the belligerent language that has accompanied negotiations around Brexit and, of course, by President Donald Trump and his social media approaches to Germany’s or China’s trade surplus.

Across the world, trade has become strategic – in foreign policy as well as in economic terms.

In the context of where we go next in the second phase of negotiations with the EU, acknowledging this is key.

For example, the UK’s trade with the EU is dominated by a few familiar sectors: aerospace, automotives, pharmaceuticals, electrical equipment, oil and gas, machinery, and components and precision equipment.

The top 15 trade flows (imports and exports) by sector are in these areas. They account for over 60 per cent of the UK’s goods trade with the EU and have a very high dual-use goods component within them.

In other words, the UK and EU’s trade helps not just the respective economies, but also their security and defence systems.

Maybe this explains why Theresa May was so keen to stress the link between trade and security from the outset in her Article 50 speech at Lancaster House last January. Some 30 per cent of the UK’s trade with the world is in dual-use goods. This is the highest of any of the G20 countries, including the US.

As such a large proportion of this is with the EU, it is very hard to understate the importance of these sectoral supply chains from both an economic and a political perspective.

We should not assume that trade should be the only thing to discuss during the next phase of negotiations. Trade, security and defence, and even counter-terrorism are all interwoven with one another.

If the language remains as weaponised as it has been – that is, if we see “enemies across the table” and try to use trade power as a route to influence – the UK is bound to lose what remains of its soft, and potentially even its hard, power.

Supply chains are as delicate as they are strategically important. They create jobs, growth and innovation, but they also help our security and defence. It is time to recalibrate the balance between politics and economics in trade.