Brexit’s effect on the trade economy

Unless you’ve been paying attention to each little detail in the ongoing Brexit saga, you may have begun to get a little bit fuzzy on the details. Indeed, this has been a drawn out process, and those who aren’t directly affected would be easily forgiven for tuning out to some extent. In a few words, the Brexit will take full effect less than two years from now. A two-year countdown was set in motion this past spring when prime minister Theresa May officially triggered Article 50. But let’s quickly recap how we got here….

Heading into the spring and summer of 2016, the Brexit was a popular topic of discussion not just in the UK and Europe but all over the world. It was generally viewed as a long shot, with the result that that the final referendum vote shocked the international community and took bookies by surprise as well. The common prediction had been that the UK would in the end vote to remain in the European Union – even if late stage polling had indicated that Brexit was more than just a slight possibility.

In the time since then it’s been difficult to keep track of the goings on. The UK economy actually performed quite well in the immediate aftermath of the referendum. Politically the country has been in a somewhat bizarre state, with May calling for snap elections only to see her lose a Parliament majority. And the actual Brexit, contrary to common misconception, didn’t actually take place. For that, May had to officially trigger Article 50, at which point two years of debate and negotiation effectively started off in advance of the formal departure from the EU.

Now that those debates and negotiations have begun, it’s fair to begin to speculate about the potential long-term effects on the UK and European trade economy. The Telegraph framed this conversation quite nicely for those who may not have read much about it, stating simply that the UK will need to strike new deals in order to enjoy free trade with the countries it’s long had productive relationships with. Within the EU, the UK and its native companies have long been able to sell products and services to citizens of other European countries without those citizens needing to pay additional taxes. Similarly, citizens in the UK have been able to enjoy foreign products in the same fashion.

There is not necessarily any reason to suspect similar deals won’t be struck in due time. But the UK will have to negotiate with each individual country now, rather than operate under general EU rules. Alternatively, the country could potentially look to strike a broader deal with the EU, such that a free trade agreement would exist despite the UK not being a member state. As The Telegraph pointed out, this is somewhat like the agreement Norway enjoys despite not being part of the EU.

However, that appears to be a best-case scenario, and perhaps a slightly unrealistic one at that. It has also been suggested that the UK may not be able to enjoy an EU-style free trade agreement without adhering to every one of the “four freedoms” of the EU. Those include the free moment of goods, capital, services, and people across borders, and it’s largely the “people” part that seemed to be on the minds of those who voted in favor of Brexit. If the UK isn’t willing to allow for easy cooperation with immigrants or international businesspeople, however, some believe that the EU negotiators will not allow free trade agreements to come about. To some extent, the EU could negotiate with an all-or-nothing approach.

At this point it’s still too early to say how things will turn out when the Brexit formally takes effect. But broadly speaking, these are the issues to watch in the coming two years.

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Foreign Policy News

Foreign Policy News is a self-financed initiative providing a venue and forum for political analysts and experts to disseminate analysis of major political and business-related events in the world, shed light on particulars of U.S. foreign policy from the perspective of foreign media and present alternative overview on current events affecting the international relations.

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