What is a trade war – and is Boris Johnson about to fight one with the EU?

Britain's Prime Minister Boris Johnson meets European Commission President Ursula von der Leyen in London, Britain January 8, 2020. REUTERS/Toby Melville
Tensions are growing between the UK and the EU over the issue of the Northern Ireland protocol. (Reuters)

There are growing fears that a trade war with the EU is on the horizon after the UK government announced its plans to unilaterally change the Northern Ireland protocol.

The PM confirmed plans to bulldoze the agreement on Monday as the UK and EU remained at odds over the trading and checking of goods going in and out of Northern Ireland.

After 18 months of attempts to renegotiate, no mutually acceptable arrangement has been reached.

The EU says it will not renegotiate because the prime minister agreed to the terms when he signed the Brexit deal in January 2020.

Read more: Boris Johnson says plan to break Brexit treaty is ‘not a big deal’

The bloc has warned of "serious consequences" if the UK does back out of the arrangement, and launched legal action on Wednesday.

What is the Northern Ireland protocol?

The Northern Ireland protocol is a trade agreement that formed part of the Brexit deal.

The EU and the UK agreed inspections for goods would happen at ports in Northern Ireland – avoiding the need for a hard border with Ireland. Northern Ireland would also follow EU rules on product standards.

Goods checked at Northern Irish ports could then move into Ireland and the rest of EU.

An anti-Northern Ireland Protocol sign close to Larne Port, as a Bill to amend the Northern Ireland Protocol unilaterally will be introduced in Parliament today, amid controversy over whether the legislation will break international law. Picture date: Monday June 13, 2022.
Unionists are unhappy with current border arrangements as they say it cuts them off from the rest of the UK. (PA)

The issue of the Ireland-Northern Ireland border became a major sticking point during Brexit negotiations.

Northern Ireland is the only part of the UK that shares a land border with the EU. Plus, the border is politically fragile due to the unrest and violence seen during the Troubles.

Any changes to the relationship between Ireland and Northern Ireland could risk the 1998 Good Friday Agreement and jeopardise peace.

Read more: EU Brexit chief suggests MPs should stop Northern Ireland protocol bill

While the republican party Sinn Fein has accepted the Brexit arrangement, unionist parties are frustrated with the agreement and have refused to form the Northern Irish assembly, saying the deal cuts off Northern Ireland from the rest of the UK.

This increasing unhappiness with the arrangement has been a driving factor for the government's decision to move away from its agreed deal. Among the proposed changes are:

  • Customs 'green channel': Exports passing from Great Britain destined for Northern Ireland will not need paperwork, checks or duties.

  • Customs 'red channel': Exports going from Great Britain destined for the Republic of Ireland or the rest of the EU by traders not in the "trusted trader scheme" will be subject to full checks and full customs procedures.

  • A 'dual regulatory system': Businesses can choose to operate under UK or EU law.

Sinn Fein Vice President Michelle O'Neill speaks to the media in the Great Hall at Parliament Buildings, Stormont, Belfast as the Bill to amend the Northern Ireland Protocol is introduced in Parliament amid controversy over whether the legislation will break international law.
Sinn Fein's Michelle O'Neill has criticised the UK government for attempting to unilaterally change the Northern Ireland protocol. (PA)

What is a trade war?

Often trade wars involve governments putting up tariffs or increasing restrictions on imports from a certain country, largely in retaliation for behaviour they don't like or agree with.

Trade wars can drive up prices and increase inflation, as well as damaging diplomatic relations.

There can be positive consequences for domestic growth, making production of certain goods cheaper than importing them from abroad.

Read more: 'This Is Illegal': European Commission Chief Savages UK Plans To Rip Up Brexit Deal

In this instance, there are concerns that the EU could slap tariffs on exports on key British exports like salmon in retaliation for breaking the Brexit agreement, which would increase the price of the goods for businesses and consumers.

This, in turn, could result in the UK placing tariffs on EU goods arriving in the UK, driving up prices at the till.

Foreign Secretary Liz Truss during a visit to McCulla Haulage, in Lisburn, Northern Ireland, to discuss the NI protocol with businesses. Picture date: Wednesday May 25, 2022.
UK foreign secretary Liz Truss has said the new legislation, which breaks the Brexit agreement, offers solutions and protects the Good Friday Agreement. (PA)

How likely is a trade war?

A trade war is not an appealing avenue for either side given the deepening cost-of-living crisis on both sides of the Channel.

On Monday, the prime minister warned that a trade war over changes to the Northern Ireland protocol would be a “gross overreaction” by Brussels.

“All we are trying to do is simplify things, actually, to remove the barriers to trade between Great Britain and Northern Ireland,” he told LBC Radio on Monday.

Read more: Truss: ‘Absolutely no reason’ for EU anger over plan to override Brexit deal

However, there seems to be signs that preparations are already underway should the EU decide to retaliate.

On Tuesday, the BBC reported that companies like the German car manufacturer Volkswagen are preparing for that eventuality.

"There's a lot of communication going on. And there's also a dependency," Herbert Deiss, the chief executive of the company, told the broadcaster.

Ireland's (Prime Minister) Taoiseach Micheal Martin looks on during a news conference at the Grand Central Hotel after speaking to Northern Ireland party leaders regarding issues surrounding the Northern Ireland protocol and power sharing impasse, in Belfast, Northern Ireland, May 20, 2022. REUTERS/Clodagh Kilcoyne
Ireland's taoiseach Micheál Martin has said an EU-UK trade war is not off the table should the UK break the Northern Ireland protocol. (Reuters)

"We have a British brand, Bentley, which is doing extremely well… also the UK is our biggest export market in Europe for the premium brands for VW and Audi ... so I think there will be, let's say, a mutual interest now to keep [trade] open."

And in May, taoiseach Micheál Martin, the Irish prime minister, indicated a trade war was not off the table if the UK breached the Brexit deal it signed.

“It's very clear that everything's on the table in terms of any responses to what might happen," said Martin.

Read more: Brexit blunder: Boris Johnson ‘dug a hole and jumped in’ over Northern Ireland trade pact, says Lord Hague 

Shadow foreign secretary David Lammy has criticised the government's management of the issue.

"By tearing up the protocol it negotiated just a couple of years ago, the government will damage Britain’s reputation and make finding a lasting solution more difficult," said Lammy.

"The EU must show more flexibility as Labour has said from the start. But this legislation is not the way to unlock progress."

Watch: Boris Johnson faces EU legal row after plan to rewrite Northern Ireland’s Brexit deal