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British Government Says It Will Slash Most Tariffs in a No-Deal Brexit Scenario

As predicted, the British Parliament voted against Prime Minister Theresa May’s Brexit on Tuesday evening. This second rejection means the Parliament will on Wednesday evening vote on the desirability of a no-deal Brexit and, presuming the scenario is rejected, vote again on Thursday on the question of whether the U.K. should ask the EU for a Brexit deadline extension.

JPMorgan now believes the likelihoods of a second referendum or a fresh general election have gone up, but it still says the most likely option is that May somehow gets Parliament to back her deal on a third attempt.

That seems optimistic, given how resoundingly the deal has been turned down thus far, but the big U.S. banks seem to assign very low odds to the most disastrous outcome: a no-deal Brexit. Like Goldman Sachs, JPMorgan thinks there is only a 10% chance of this happening, even though no-deal will be the default outcome on March 29 if a deal hasn’t been agreed and an extension hasn’t been granted by the EU.

May’s government is certainly doing all it can to avoid that scenario.

On Wednesday, it published its long-awaited trade plan for a no-deal Brexit, in which the country would for one year eliminate tariffs on 87% of imports—not including cars and meat, in order to protect key British sectors.

On the plus side, the elimination of most tariffs would keep a lid on consumer prices and help many businesses that need to import goods and parts, at a time of economic chaos. However, local suppliers of the sorts of goods that are no longer tariffed at import would suddenly be exposed to cheaper international competition, and the elimination of tariffs would remove other countries’ incentive to strike new trade deals with the U.K., which is supposedly one of Brexit’s main attractions.

That’s a huge downside, making Wednesday’s trade announcement something of a threat to parliamentarians who might be considering backing a no-deal Brexit in the evening.

“The government is publishing this approach ahead of the vote in Parliament on No Deal to ensure MPs are fully informed,” it said in a statement, while adding that the temporary tariffs would not apply to goods entering the country via the Ireland-Northern Ireland border.

“This tells us everything that is wrong with a no-deal scenario,” Confederation of British Industry (CBI) chair Carolyn Fairbairn said in a BBC radio interview. “What we are hearing is the biggest change in terms of trade this country has faced since the mid-19th century being imposed on this country with no consultation with business, no time to prepare… this is a sledgehammer for our economy.”