A nickname for “British Exit,” Brexit is the withdrawal of the United Kingdom (UK) from the 27 member bloc, the European Union (EU). The process started when the UK voted to leave the EU in the June 23, 2016 referendum. Nearly 52% voted to leave the bloc while 48% voted to remain in the bloc.
The UK formally left the EU after the ratification of the withdrawal agreement by the UK parliament. After this, the UK and the EU will negotiate their future commercial and non-commercial contracts till December 31’ 2020 (also referred to as transition period for the exit).
The UK benefited by being a member of the bloc due to free trade and immigration agreement between the member countries of the bloc. Post the exit, the UK will now negotiate separate agreements with the bloc that might include a host of barriers and filters on trade and immigration.
What caused the Brexit
Brexit is the typical awakening of protectionism. Those who feared free trade and free movement of people voted for Brexit. The thought here was foreigners are taking jobs that locals deserve.
The ones who understood the benefits of free trade voted against the exit. These were mainly people from London, Scotland, and Northern Ireland.
Under the withdrawal agreement, the UK, along with its member Northern Ireland, will not be in “customs union” with the EU. It still allows Northern Ireland to keep EU custom rules with another EU member, the Republic of Ireland, whom it shares borders with, avoiding a hard border between the two countries.
The UK and EU will most likely impose tariffs on imports from landing on their borders from each other. The European nationals working in the UK and the UK nationals working in the EU will continue to work without work visas. The UK proposes a skill-based immigration system for the future immigration framework.
The UK will also pay a divorce bill of GBP33 billion to compensate for residual financial commitments.
Impact on the UK and the remaining EU bloc
The uncertainty after the referendum already impacted the UK’s growth as companies were unsure of how to save their interest if the deal goes through. The UK growth tumbled from 2.4% in 2015 to 1.5% in 2018. As per a leaked UK government report, the UK will lose 2-8% in GDP in 15 years following Brexit.
Pound value declined after the vote and expected to decrease due to capital flight from the Kingdom after the imposition of trade and labor restrictions.
The UK will lose significantly because of Brexit. Its exports will become uncompetitive because of the tariffs and imports which are bound to become expensive. A large part of the UK’s trade is with the bloc, and this will be highly detrimental to the Kingdom’s interest.
UK will also not have free access to the technological prowess of the EU, which is available for free to the member nations.
The European Union will lose its second-largest country and the most significant contributor to the EU budget, which will increase the financial commitments of the remaining member contributors.
London’s lucrativeness as a financial hub will also be tested, and it might lose its sheen as free capital flows between London and the EU will no longer exist.
With tighter immigration policies, citizens in the UK will find it difficult to get jobs in the remaining member nations.
Scotland did not vote against Brexit but will have to side with the UK unless it calls a referendum on its independence from the UK It can then apply for an EU membership on its own.
The UK will suffer a more significant loss in its decision to withdraw from the EU. The losses will be further accentuated with the absence of a trade deal. A negotiated agreement that safeguards the interest of Britons will still be a saver. However, no matter what the deal is, the UK’s competitive position will be significantly dented due to its isolation from the bloc.
The protectionist agenda also traveled to the US, where they elected an anti-free-trade President to stop the free trade that voters thought was taking away jobs from America. If such a plan flows to other big nations as well, that might cause huge problems for the currently globalized world.