Sample International Trade Paper on Impact of Brexit

Economic Impact of Brexit

Brexit continues to elicit various reactions among the European Union (EU) members. Withdrawal of membership by the United Kingdom (UK) from the economic block seems to have led to the divide of opinion, especially on the effect within the country. Some economic experts see UK’s withdrawal as a step towards the decline in trade, while others argue that it will lead to more saving for the common good of business within the country. According to Sarah Johansson’s article on Friday, 05 May 2017 by The Brussels Times terms UK’s Brexit as a ‘tragedy’, casting doubts on the positive implication on the economy. She quotes European Commission President Jean-Claude Juncker’s speech at an Italian University. However, it is important to look at the actual economic effect of the UK leaving the EU economic block. The UK and EU are about to start negotiations on some of the laws that govern trade between the two entities.

Brexit got the go ahead because of the majority votes during the referendum, something that led to the resignation of the former Prime Minister. It meant that the majority of the UK population considered Brexit as a better option towards economic trade, than conducting trade within the EU block. However, various economic researches note different impact of the exit, especially when it comes to the imports and exports by the UK traders. According to Sarah’s article, Brexit is a tragedy to UK; however, other economist also note that it would lead to some positive economic trade. In order to understand the correct outcome of the UK’s exit from the EU trading block requires a proper analysis of the predictions by various economists. In addition, a look at authoritative publications can also provide proper perspective, in light of different sectors of the UK’s economy.

According to Somerville (2016, p. 23), proponents of Brexit argue that UK makes huge financial contributions to the EU, money that could be used for developmental matters within the borders. These proponents look at some of tax cuts that would accrue from the exit as a way of encouraging domestic trade and development. On the other hand, the research conducted by Mason (2016, p. 1) notes that economic forecast shows that the UK would still less money to spend on the domestic economy, even without the contributions to the EU. Institute of Fiscal Studies, found out that UK’s exit from the EU would lead to the saving or retaining of more than 9 billion pounds membership contributions. However, cutting the links would lead to cutting the trade links between the two entities, causing more harm than good. For instance, exiting the trade agreements would lead to the drastic reduction in economic  growth, something would force the UK to spend more than 70 billion pounds to stabilize the economy. Other proponents think of the new trade deals that would help the UK achieve proper economic growth within a short time.

Foreign Direct Investment (FDI) is an important indicator of economic growth. Following Brexit, many trade and economic analysists argue that the UK market faces uncertainty. The uncertainty comes into the picture because of the negotiations that the UK prepares to start with the EU. A number of trade regulations will come into place, especially when it comes to the freedom to conduct trade. The long term positive impact of leaving the union will outweigh the short-term volatility of the domestic market following Brexit (Hobolt 2016, p. 1260). The problem of being a member of the union comes from the more regional regulation and less domestic control of the trade. According to the proponents of the exit, more control over the domestic trade stands to be the best option towards economic growth of the UK.

The UK has always done well when it comes to the Direct Foreign Investment, amounting to more than seven percent of the global figures. The UK has been seen as the major entry point into the EU market, with major companies opting to use London as the major point in order to spread into other EU markets. Therefore, the proponents of the Brexit do not see a situation where trade would be affected silence the UK’s FDI is already been established.

Property Market in another economic area that would determine the effect of Brexit. According to Vaswani, K. (2017, p. 1), Asian investors have continued to increase their trading activities within the UK. The survey done by JLL Company, and reported by the BBC, the UK property market registered a 29% increase in transactions by the Asian Property Investors. This translated to an increase of 18%, in comparison to the previous year. This increase in property investment indicates that Brexit has no negative effect on the UK’s property market. On the same note, there is more than 60% increase in property investment inquiries from the Chinese Property Investors, a show of confidence on the UK’s trade decisions. However, other property firms still insist that Brexit has created certain uncertainties on the UK’s property market.

Changes in the stock market and currencies after the Brexit vote made many economists to speculate doom. This comes from the fall in the stock market and currencies at London Stock Exchange. The stock market lost an equivalent of three trillion dollars in less than three days (Buttonwood, 27 June 2016, p. 1). These changes as a result of the uncertainties that Brexit referendum caused. However, the market registered a turnaround by July 1, 2016, by an increase of the figures above that registered before the referendum. Dow Jones, S&P 500 and FTSE 100 registered an all-term high figures ever registered in London Stock Exchange since 2011. The pound sterling fell to the lowest after the referendum, in comparison to the US dollars, affecting other currencies like the South African Rand (Treanor, Goodley & Allen 2016, p. 2). However, it has taken longer for the pound sterling to regain the original strength in the foreign exchange market.

As it stands, it is obvious that the UK is approaching Brexit negotiations from the point of strength. Sarah Johansson’s article paints a picture of gloom, terming the decision to exit a tragedy. It is important to accept the short term effect of the various components of trade on the UK’s economy. However, the negative effects remain short-term, paving way for the increase in the trading activities within the economy (Evans 2017, p. 2). Negotiations are about to start between the UK and the EU, it is obvious that the the trade laws will ensure that the UK economy is controlled by the  domestic trade laws. The way things stand, the UK’s economy maybe affected, but the negative effect would be short term, paving way for robust growth.

References

Vaswani, K 2016, “Brexit not deterring Asian investors from UK property market”. BBC.com.

BBC. Viewed May 10, 2017 <http://www.bbc.com/news/business-39732816>

Buttonwood ( 2016). “Markets after the referendum – Britain faces Project Reality”. The

Economist. The Economist Newspaper Limited, 27 June. Viewed May 10, 2017             <http://www.economist.com/blogs/buttonwood/2016/06/markets-after-referendum>

Treanor, J Goodley, Simon & Allen, K ( 2016). “Pound slumps to 31-year low after Brexit vote”.

The Guardian, 24 June. Viewed May 10, 2017             <https://www.theguardian.com/business/2016/jun/23/british-pound-given-boost-by-            projected-remain-win-in-eu-referendum>

Evans, Pete (24 June 2016). “Loonie loses more than a penny, TSX sheds 239 points after

Britons vote to quit EU”. Canadian Broadcasting Corporation. Viewed May 10, 2017             <http://www.cbc.ca/news/business/brexit-vote-business-impact-1.3650553>

Oltermann, Philip (9 July 2016). “Berlin is beckoning to Britain’s startups. But will they leave

London?”. The Guardian. https://www.theguardian.com/business/2016/jul/09/berlin-brexit-beckons-britains-startups-london-tech

Mason, Rowena (3 October 2016). “UK and Scotland on course for great ‘constitutional bust-up'”.

BBC. http://www.bbc.co.uk/news/uk-scotland-scotland-politics-37540552?ns_mchannel=social&ns_campaign=bbc_scotland_news&ns_source=twitter&ns_linkname=scotland

Somerville, W. (June 2016). “When the Dust Settles”. Migration Policy after Brexit, Migration

Policy Institute Commentary

Hobolt, Sara B. (7 September 2016). “The Brexit vote: a divided nation, a divided continent”.

Journal of European Public Policy. 23 (9): 1259–1277