What Will Brexit Mean For Trade?
At this point it’s been over a year since the UK voted to leave the European Union in a referendum that has become known as the Brexit vote. I wrote at the time about the potential devastating economic impact of the Brexit, and indeed there were many people forecasting a great deal of turmoil for the UK economy. But now, some 15 months on from the Brexit decision (and getting closer to the actual, formal exit of the UK from the European Union) we can look back with a little bit more perspective.
For starters, it’s worth remembering that this was one of the more surprising geopolitical events in quite some time, at least to a lot of casual observers. While some experts and even some polling firms believed in the end that Brexit had a good shot at passing, we need only look to the betting markets for confirmation of the surprise factor in retrospect. Brexit set a world record for the largest sum of wagers on a non-sports event, and across the board bookmakers reported massive losses – meaning the favored outcome (that Britain would remain in the EU) lost out.
This is not merely to point out that Brexit surprised people, but to indicate why some of the early economic predictions might have come from analysts who were a little carried away. When a shocking or calamitous event occurs, people are often quick to predict outlandish consequences. Accordingly, there were a lot of doomsayers regarding the UK’s economy in the event of a Brexit. What actually happened was a little bit of a mixed bag.
While the pound sterling did indeed plummet, as I previously noted, with many investors turning to gold as a “safe haven,” the actual UK markets didn’t suffer any noteworthy losses. There have been ebbs and flows of course, and there are reasons for them that are associated with the pending Brexit. But at this stage, the more important question isn’t how the pound sterling or stock market will react. Rather, the closer we get to the decision being formally enacted, the important thing to ask is how it will affect the UK’s trade agreements.
To clarify, trade agreements have not changed just yet. The Guardian did a very thorough analysis of this subject and some of the questions associated with it, and to summarize, the triggering of Article 50 (which is basically formal intent to leave the EU) set a two-year window for negotiation during which the UK will attempt to form new, favorable trade agreements. What those agreements will look like is, at this stage, anybody’s guess.
Within the EU, UK companies were free to sell to other EU members without high taxes on foreign basis, and mainland European nations could do the same in Britain. Some of the most optimistic Brexit supporters believe that a similar deal can be reached between the UK and EU as separate entities, rather than simply by virtue of the UK being in the EU. But others are skeptical and believe that the EU may take an all-or-nothing approach to negotiations. This means that if the UK isn’t willing to accept other aspects of EU membership (probably mostly concerning the free movement of immigrants and international travelers), the EU may be reluctant to offer trade deals that resemble its own existing agreements.
The UK will also need to negotiate independently with foreign nations, rather than being bundled into UK policies. However, it’s said that trade with the U.S. – one of the UK’s most important overseas partners – should not be affected for the most part.
It’s also worth noting that it’s a little bit unclear which political voices within the UK will have the most sway over these negotiations, and it’s conceivable that those who opposed the Brexit in the first place will make themselves heard. While Brexit supporter Theresa May remains the prime minister, she had something of a political disaster earlier this year when she called a vote to strengthen her parliamentary majority and wound up doing just the opposite. Jeremy Corbyn, the leader of the opposition Labour Party and a possible future PM, has recently been under pressure to strengthen his anti-Brexit stance, for instance, and his voice will certainly factor in during the two-year negotiation window that was triggered back in spring.
Ultimately, as you can see, we have more questions than answers at this point. But we’ll likely begin to hear more about negotiations in the months ahead, and could begin to gain some idea of what the post-Brexit trade economy will look like in the UK.
Magically yours,
SG Wealth Builder
