Implications of Brexit - Coursework Example

Implications of "Brexit” Name Institution Introduction The membership of the United Kingdom in the European Union has shaped its relationship with trade partners (Minford, 2015). It has reduced trade costs and has eliminated tariff barriers within the European Union. It has led to the creation of a single market due to free trade of goods and services. These benefits of the membership of the European Union have been available for century. Therefore, how would leaving the European Union or Brexit affect United Kingdom’s economy? Leaving the European Union is considered a huge step made by a member state. Such a decision is a social and political one and tends to have a huge impact on the economy (Minford, 2015). The decision made by the United Kingdom to exit the European Union has created much debate. Some studies have showed that Brexit would have a negative impact on UK economy while some shows some positive implications. The extent of the economic impacts of Brexit cannot be definitely known before the event. Thus, a number of estimates have offered differing measures of the impacts (Dhingra and Gianmarco and Sampson, 2015). This essay will review the impacts of Brexit and whether it is good thing for the United Kingdom. Implications of "Brexit” Brexit does not instantaneously influence United Kingdom trade but has the potential to do so in future (Bair et al., 2008). The impacts of Brexit on United Kingdom trade will hinge on the relationship it will have with EU after Brexit. Nevertheless, the likely scenario will be that the regulatory discrepancy that increases the costs of trade will surge which will damage bilateral trade and the country’s position in EU supply chain. Leaving the EU will return power to the United Kingdom to establish its tariffs and trade policies. The economic impact of returning power to UK may be mixed (Booth et al., 2015). With Brexit, the UK’s trade with the European Union will be unfavourable since it can lose access to the single market. Brexit could be beneficial in an event where the UK lowers tariffs below EU rates. Moreover, Brexit may have an impact on trade relationships between UK and other countries. It is possible that the country could lose the access to EU trade agreements with countries like Canada and South Korea (Booth et al., 2015). Also, the decision of United Kingdom to leave European Union could affect its position in trade negotiations the country was a liberalizing force in the partnership. Brexit is also able to impact UK economy by changing its foreign investment, regulation as well as migration. It is likely that Brexit will decrease foreign investment which will affect the country’s productivity. For Instance, according to Handley and Limao (2015), European Union membership has added about 2.25 per cent to UK GDP through foreign direct investment. At the same time, EU membership has favoured migration which has assisted in reducing budget deficit without affecting labour market (Dhingra et al., 2016). Eurosceptic has promised less regulations brought about by Brexit. However, less regulation does not result to optimistic scenario. To access single market, UK will require having the same regulations as EU countries (Mejean and Schwellnus, 2009). Brexit will weaken UK social, employment and environmental regulation which would not make any significant economic difference since it is considered to be among the countries with flexible regulations in the world. The United Kingdom industry has yielded benefits from research collaboration when they were a member of EU (Pain and Young, 2004). After Brexit, although UK would gain industrial policy flexibility, it would be defeated in areas like energy. The UK receives research funding from EU which benefit their businesses in sectors such as automotive, chemical sectors and pharmaceuticals. Leaving EU would be detrimental to their research work (Ottaviano et al., 2014). The impact of Brexit on UK industry policy would be dependent on the Brexit model. Moreover, Brexit may have an impact on immigration (Dustmann and Frattini, 2014). Immigration is a critical concept in the UK since the challenges and benefits are not even due to media coverage. Immigration is very important since it assist UK to access specialist skills required in high-valued industries (Dustmann and Frattini, 2014). Brexit may result to the change in the free movement of labour which will impact different industries in the country and may create political contagion (Ottaviano et al., 2014). Brexit could be beneficial to United Kingdom (Sampson, 2016). All the EU members under the same trade policy and are represented by the European Union during trade negotiations (Gavin and Harari, 2013). Exit from the EU will make UK an independent player and will have the freedom to seek new trade deals with other countries (Ottaviano et al., 2014). The country could use their freedom to seek for trade deals with potential trade partners such as China and United States. Nevertheless, since UK is a smaller market compared to EU, it will have low bargaining power during negotiations. Currently, UK is conducting trade negotiations with the United States and Japan (Holehouse, 2015). Their plan to exit EU will destroy these negotiations. It is reported that these countries would lower prices since they are not willing to enter into a trade agreement with UK alone. Although Brexit may result to negative effects on UK economy, it has a potential to create a number of benefits (Nigel and Young, 2004). Although UK will not have access to single market, it will have the ability to develop an independent market free from EU restrictions. Countries such as Iceland and Switzerland have established their own independent market and are doing great (Kleveland, 2015). As a result, UK will re-negotiate better trading terms due to their independence. And in the long-run, the country will have a major economic growth period. Inward foreign direct investment may be affected in the short-run but the country may become a safe haven. Trade partners are less likely to leave the country for uncertain EU (Dhingra, Gianmarco and Sampson, 2015). In addition, Braxit can be an opportunity for UK to bring back some industries. For instance, without European Union interferences and restrictions, the country can support key industries like fishing and steel. Any trade and industry decisions will be made democratically through the parliament (Dhingra, Gianmarco and Sampson, 2015). In addition, the weakening of the British pound could bring about positive results. For instance, although analysts warn people of the negative impacts of weakening national currency, the weaker British pound will make UK exports more competitive (Nigel and Young, 2004). As a result of the weaker currency, the country can sell their products cheaper which will increase their profit margins and recuperate the nation’s industries. Generally, UK striking new trade agreements and opening new markets outside Europe would offer economic benefits and would reduce the effects of Brexit on trade, regulations and foreign direct investment (Nigel and Young, 2004). Independence from EU maybe a create opportunity for UK to strengthen its financial abilities and develop a well-balanced economy. The direct negative financial effects of EU membership is very simple to determine but the financial benefits to be enjoyed by UK when it leaves EU is dependent on the Brexit model and the ability of the country to strike trade deals with the rest of the world (Dhingra et al., 2016). Brexit brings about significant variations in its impacts, with some parts of UK gaining while othr parts losing. Brexit is an extended process that would take a long time. The ultimate fate of UK is uncertain as businesses and the economy at large would face ambiguity (Dhingra et al., 2016). Due to the nature of Brexit, there would be a lengthened period of uncertainty that can damage the confidence of investors. Although UK would have some independence, there is fear that Brexit could bring about more harm than good. The general economic influences of Brexit will largely depend on the policies adopted by the country following the decision (Dhingra et al., 2016). Conclusion In conclusion, the economic implications of Braxit are uncertain and will depend on the decisions made by UK after leaving the EU. Nevertheless, lower trade and foreign direct investment is likely to cost the country’s economy. The effects of Brexit on the UK economy will be severe across multiple channels such as trade agreement ability, policy interests and financial sectors. Braxit also comes with some positive impacts such as market independence, competitive exports, and ability to trade with countries outside EU. The future of UK after leaving the EU is uncertain since it will come down to independent choices. The United Kingdom may either make the correct or bad decisions but these decisions will be rectified through parliamentary votes. Therefore, Brexit may not be a bad idea for UK. If UK chooses to leave the EU, it should work at rectifying the damages made by its decision through well-thought choices. 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