The Global Economic Consequences of Brexit

Introduction 

Globalization refers to the process of global interaction and integration between businesses and organizations to form a global economy that enhances international trade. Globalization is regarded as a capitalist expansion that aids the combination of local and international economies to develop an unregulated global market economy. The main types of globalization include political globalization, social, and economic globalization, which involves different types of relations within a global platform. The evolution of globalization is attributed to factors such as technological advancements that enhance infrastructure and communication between different countries. Considering that globalization focuses on creating a connection between different countries, there is a wide range of benefits attributed to the process. Firstly, globalization helps in the development of a global culture, which is enhanced through cultural, political and economic integration. Secondly, globalization enhances communication and the development of infrastructure, which is an aspect that is enhanced by interacting with different countries.

The evolution of globalization resulted in the formation of the European Union, which is a union that helped in enhancing international trade between the member countries. The European Union provided a platform for the member countries to engage in international business with favourable policies. A specific global phenomenon that relates to the aspect of economic globalization is Brexit. Brexit refers to the withdrawal from the European Union, which is a move that was attributed to votes cast to ensure that the United Kingdom cancelled their membership from the EU. The issue of Brexit reflects on the different aspects that are associated with globalization, focusing on the challenges and impact of globalization (Rehman & Della Posta, 2018). The paper will focus on the analysis of factors such as the history of Brexit and the possible implications of Brexit. The primary purpose of the article will involve the evaluation of the impact of Brexit on the world economy and on the financial markets.

History of Brexit 

The rocky relationship between the United Kingdom and the European Union contributed to the need for the withdrawal of membership from the European Union. The need to join the European Union was attributed to the need for promoting economic cooperation, which would help to overcome the financial impact experienced during World War II. The United Kingdom applied to join the European Union, which was then referred to as the European Economic Community (EEC) in 1963. Following the approval to join the European Union, there was the development of different uncertainties concerning whether the United Kingdom should remain to be part of the European Union, which is an issue that was attributed to factors relating to trade policies. In 1984, the tension between EEC and the United Kingdom erupted when Margaret Thatcher, a conservative Prime Minister, talked of reducing the British payment on a budget of the EEC. The opinion of the Prime Minister sparked tension between the European Union and the United Kingdom.

The battle between the European Union and the United Kingdom thrived owing to the economic unrest that was experienced within the Eurozone. In March 2017, the United Kingdom government initiated a formal process of withdrawing from the European Union by invoking Article 50 that addresses the EU treaty (Rehman & Della Posta, 2018. The EU-UK withdrawal negotiations capitalized on addressing various aspects of the Union, focusing on aspects such as leaving the EU customs union. The issue of the financial settlement and customs union resulted in disagreements between the members of the Labor Party and the Conservatives, thus leading to a delay in Brexit. Following the failures to reach a proper agreement, the United Kingdom voted to delay the Brexit to ensure that all the crucial elements are addressed adequately. The Brexit plans continue to face a delay to provide the EU and the United Kingdom with adequate time for revising the withdrawal agreement.

Potential Impacts and Implications of Brexit 

The withdrawal of the United Kingdom from the European Union faces a wide range of implications that would influence the issue of international trade. The ratification of the move to withdraw from the European Union will impact the global economy and the operations in the financial markets. The potential effects of Brexit are based on how the United Kingdom will be tied to the EU following the ratification of the move to withdraw. The terms associated with the Brexit will help in defining the nature impact that the move will have on the United Kingdom and on the global economy. The no-deal Brexit or the hard Brexit will have different consequences on the global economy and on the general financial markets.

According to Anil (2018), Brexit may have positive and negative implications on the global economy; thus, the need for a critical analysis of agreement within the negotiations. Considering that the United Kingdom was a significant play in the EU, it possible that its absence may influence the Ideological balance, thus the need to change policies to help in enhancing balance within the Union. In that case, the EU may face different challenges in trying to balance the systems. On the other hand, the United Kingdom may also face challenges that are attributed to the privileges that are obtained by the EU members.

Failure to address crucial terms in the negotiations may impact the economy of the United Kingdom, which is an aspect that will affect the business operations of companies operating within this jurisdiction. The processes may be affected following the changes in trade policies between the United Kingdom and other countries. In general, Brexit has a potential implication on different aspects of the world economy and international trade, which affects the business operations in organizations that engage in international trade.

Impacts of Brexit on the European Union 

Brexit has a significant impact on the impact on the European Union, considering the economic and social changes. The long-term implications involve political and institutional changes that are attributed to the nature of factors addressed within the EU-UK withdrawal negotiations. The first significant impact experienced within the European Union is based on the budgeting aspect. Considering that the United Kingdom was among the members with the highest GDP in the EU, the Brexit would cause a significant impact on the EU budget. According to Yeo (2018), the United Kingdom played a substantial role in contributing to the budget of the EU, which is an aspect that helped in sustaining significant operations. The withdrawal, in this case, would mean that the EU will experience a loss of approximately 5% of the total budget following the Brexit.

To overcome the loss, the European Commission has capitalized o measures to reduce the regional expenditure to help in stabilizing operations and filling the gap. However, the move to reduce provincial spending would result in the migration of other members who rely on regional expenditures to sustain their economies. On the other hand, a reduction on the total amount of provincial spending in the EU may help in increasing the amount of savings in the budget, which is a positive aspect that may enhance growth and development (Sznajderska, 2018). Another significant impact of Brexit involves the element of policy changes. The issue of policy changes includes a wide range of factors such as Ideological shifts, freedom of movement, Eurozone, and defence and foreign affairs.

Considering that the United Kingdom has been a critical play in defining the policies within the EU, the Brexit may result in a change of policies, which may have a negative impact on international trade. However, the Brexit may create a positive impact on EU considering that other member counties will have an opportunity to contribute to the development of trade policies. In the event of procedures involving defence and foreign affairs, the EU will benefit from new opportunities created by the Brexit to enhance European defence cooperation. Considering that the UK had opposed the issue of European defence cooperation, the Brexit provides an opportunity to pursue the issue with the aim of benefiting the countries affiliated with the EU.

The economic impact associated with the Brexit will involve the migration of workers from the UK, which is an aspect that will be attributed to the new policies and regulations relating to the labour relations between the EU and the United Kingdom. Additionally, the EU will experience a significant setback in the automobile industry, considering that the UK was a significant player in the industry, considering it is one of the largest motor vehicle manufacturers. The institutional changes associated with Brexit affect the agencies located in the United Kingdom and the European parliamentary seats. Considering that the United Kingdom was a major player in the EU, it hosted the European Medicines Agency and the European Banking Authority, which is an aspect that would impact EU during the process of making the institutional changes. Additionally, there will be the need to 73 parliamentary seats allotted to the UK, which will call for the need to have an election.

Impacts of Brexit for the United States 

Considering that Brexit is a global issue, the implications may affect other countries that are not part of the problem. In this case, the United States may experience a significant impact on the currency value, which is a factor that may interfere with the number of foreign investors that seek to invest in the economy of the United States. According to Yeo (2018), Brexit has a significant impact on the value of the Euro and that of the Pound, thereby leading to an effect on the dollar value. The Brexit has the ability to cause a decrease in the value of the Pound and the Euro owing to the changes experienced within the global trade and thus resulting in an increase in the value of the dollar.

An increase in the dollar strength affects the stock market by creating a significant increase in the value of shares in America, which is an aspect that scares away foreign investors. The changes in the currency value impact on the economy of the United States, considering that the exports to the United Kingdom become more expensive following the weakening of the Pound (Morales & Andreosso-O’Callaghan, 2019). The effects of exports result in dampening of business growth and development for companies that rely on the shipping of goods and services to the United Kingdom. The impact on trade deficits in the US where there are more imports than exports would affect the economy, considering that farming and manufacturing sectors will not have an adequate market for the products.

Another significant impact of Brexit is on the employment opportunities considering that Britain has invested in the United States this creating employment for United States citizens. Poor economic relations, in this case, would result in a situation where the jobs would be unavailable due to issues of unsustainability, thus resulting in loss of employment for people in the United States. On the other hand, the United States may benefit from the Brexit considering that the financial uncertainties in the United Kingdom may present avenues for growth and development in different parts of the United States (Morales & Andreosso-O’Callaghan, 2019).

Implications of Brexit on the World Economy and International Trade 

Brexit is also much more likely to have severe consequences for the world economy while considering that it is expected to hamper international trade, especially within the context of the EU. The main focus for Brexit is for Britain to build its own policies on a wide array of issues including trade, which means that it is expected to restructure its trade agreements with countries around the world. While considering that Britain is among the largest economies in the world, restructured trade agreements would mean that countries may encounter a vast number of challenges in their bid towards trading with the United Kingdom. Ultimately, this creates the possibility of reduced international trade between Britain and the world; resulting in a direct impact for countries that were involved in the exportation of products and services that were directed to the British consumer market.

The repercussions associated with Brexit will be experienced through the tariffs that the United Kingdom will opt to put in place to maximize its collections from trading activities with other countries. Although these tariffs may be eased depending on the deal reached with the EU, it is possible that most of the countries in the EU may find it much more challenging to engage in trading activities with Britain. Consequently, this means that most of these countries may experience a significant economic downturn attributed to the fact that they may not be in any position, allowing them to engage in trade with other countries. Some of these countries rely heavily on the United Kingdom consumer market; thus, serving as a clear indication of the projected implications to these economies.

On the other hand, it must also be noted that although most of the countries may find themselves facing negative implications as a direct result of Brexit, countries outside the EU, which include Russia and Turkey, are likely to benefit. Britain may need to shift its focus towards finding new trade partners as a way of ensuring that it maintains its economic positioning as a leading trade partner in the world. That means that it will need to focus much of its attention to finding new partners that may include countries outside the EU with the aim being towards expanding its scope. Ultimately, this shows that most of the countries outside the EU are likely to find themselves benefiting from international trade with Britain in its approach towards expanding its trade activities.

Implications of Brexit on the Financial Markets 

In the wake of the vote on Brexit, it was clear that a significant number of investors viewed this as a move that would likely to have negative implications on the investments, which had a direct impact on a plunge in the performance of these markets. The challenge was that it was somewhat hard for the countries affected to disposition themselves from the United Kingdom while considering their reliance on the Sterling Pound. The British prime minister during the vote for Brexit, David Cameron, resigned based on his understanding of the fact that Brexit was going to have negative implications on the financial performance of stock markets around the world. That is a view that has been shared by business analysts, who believed that the actual exit by Britain from the EU would mean that most stock markets would be affected in a negative way.

For the financial markets, it is essential to take note of the fact that Brexit is likely to have a severe impact affecting participants within financial markets not only in Europe but also around the world. The implications of Brexit to the financial markets can be attributed to the drop in the value of the Sterling Pound resulting from the decision by Britain to exit the EU. Although EU laws and policies apply in the United Kingdom, as it engages in negotiations on how to transition from the EU, financial market participants are experiencing challenges due to uncertainties resulting from the shift by Britain. Most of the participants are unsure of whether to move their investments to other financial markets or whether to maintain their investments until the negotiations are finalized.

The reduced value of the Sterling Pound has resulted in a situation where some of the financial markets are experiencing a significant downturn in their investments, considering that investors are pulling out to avoid a market crash. Financial analysts estimate that the pullout by Britain from the EU may result in a situation where financial investors may lose confidence in some of the other countries within the EU. Ultimately, this means that they are likely to pull out their investments from these countries with the aim being towards protecting themselves from possible market downturns. That is evident from the fact that stock markets operating all across Europe experienced a sharp decline immediately after the vote to exit the EU was approved; thus, suggesting that investors are losing confidence in the financial capacities of the EU member countries.

Brexit has also had an important implication on financial markets within the United States, as has been indicated above, where Dow and NASDAQ stock markets are experiencing a significant downturn in financial investments. The challenge is that each of these markets has a direct link to the performance of the Sterling Pound, which means that any changes in the value of the Pound are likely to have negative implications on their performance (Sznajderska, 2018). From this point of view, it can be argued that indeed Brexit is much more likely to have negative implications on the performance of financial markets around the world. The consequences cannot be avoided while considering the value that the Sterling Pound holds as one of the notable currencies in the world today.

Strategies to Reduce the European Union’s Dependency on Britain’s Membership 

An in-depth evaluation of the impacts and implications that can be associated with Brexit, as have been discussed, points to the fact that the European Union would be the most affected by the exit. That has created the need for having to find new ways through which to ensure that the EU would minimize its dependence on the United Kingdom’s membership as a way of defining its success. In other words, the EU may need to consider new approaches in its approach towards maximizing on its current membership as a way of ensuring that it does not experience any significant implications associated with Brexit. The following is an analysis of some of the strategies that the EU may adopt in reducing its dependence on Britain's membership, as well as reducing the impacts associated with Brexit:

Engaging new trade partners to increase export to other countries 

Majority of the European countries relied heavily on exports to the United Kingdom, which is the world's fourth-largest importer after countries such as China, the United States, and India. Anil (2018) indicates that 14% of Irish exports and 7.4% of exports from Germany were imported into Britain; thus, highlighting the vast nature the market within this country that the EU has exploited over the years. From this point of view, the EU may need to embark on a process through which to negotiate trade agreements with other countries away from its dependence on the United Kingdom. Correctly, the European powers may use their leverage over some of the largest importers as a way of finding new consumer markets for products and services that are produced within the EU.

The EU may need to restructure its trade talks with the focus being towards ensuring that it is able to open up exports to other countries apart from Britain. For example, the EU may engage in negotiations with countries within Africa and Asia with the aim being towards increasing exports to these consumer markets. The adoption of this strategy would mean that the majority of those countries that relied upon exports to Britain to boost their economy would shift to the new markets. Although this may not mean cutting off Britain from the EU, it would mean that the decision by Britain to leave the EU would not have any significant economic implications for countries in the EU. These countries will be in a better position of having to find alternative consumer markets that would help build on their commercial positioning.

Increasing contributions from member countries to fund the EU’s budget 

Brexit will have a significant implication towards reducing contributions to the EU's budget while considering that Britain was the most significant contributor when compared to some of the other countries in Europe. According to the EU's financial analysis, the United Kingdom contributes approximately 12.6% of its total budget, which serves as a clear indication of the level of dependency that as levelled against Britain (Sznajderska, 2018). In a bid to dealing with this challenge, the EU may need to come up with a policy framework that seeks to increase contributions for member countries. The increase will help towards ensuring that it is in a strategic position to avoid any adverse outcomes that can be associated with the decision by the United Kingdom to exit the EU.

It is essential to take note of the fact that the United Kingdom was one among the ten net contributors to the EU, which include Germany, France, the Netherlands, Italy, Sweden, Austria, Denmark, Finland, and Ireland. Consequently, this means that the remaining countries would need to increase their budgetary allocations to the EU as a way of ensuring that they cover the budget deficit that will be created by Brexit. The EU may also need to solicit some of the smaller economies within Europe to make sure that they also contribute to the Union to meet the budget shortfall created by the United Kingdom's exit. Although this strategy is likely to increase financial burdens for the countries affected, it will also pave the way for an advanced platform through which the EU is able to engage without the involvement of Britain.

Foster policies on economic stimulation and growth for countries in Eastern Europe 

Countries in Eastern Europe relied heavily on the United Kingdom's labour markets attributed to the increasing levels of job opportunities in the country, which translated to a high remittance flow back to this region. However, the occurrence of Brexit means that these countries may find themselves as a disadvantage considering that it becomes much harder for them to provide the necessary job opportunities for their citizenry. From this point of view, the EU may need to adopt a well-structured strategy through which to give guidelines aimed at fostering economic stimulation and growth within the countries in Eastern Europe to reduce their reliance on the labour market within the United Kingdom.

According to a report by Eurostat in 2014, the number of foreign immigrants from Poland and Lithuania residing within the United Kingdom was over 700,000 and over 160,000 respectively. That shows that the decision by the United Kingdom to exit the EU would mean that these foreign nationals may experience challenges in trying to find relevant job opportunities within the British jurisdiction. Nonetheless, the EU may engage in bilateral agreements with other countries outside Europe, which include the United States and Canada to ensure that persons from thee smaller countries would gain job opportunities. At the same time, the EU would also need to show its commitment towards creating a front for investment in the Eastern Europe countries, especially from multinational companies intending to set up within the EU. The expectation is that this will be of value towards ensuring that the states are able to provide job opportunities for their people without having them move to other countries around the world.

Bilateral trade agreements with the United Kingdom in the aftermath of Brexit 

The EU may also adopt a strategy allowing it to engage in bilateral trade talks with the leadership with the United Kingdom aimed at reaching a consensus on how Britain would continue providing some form of support to European nations. The discussions will be focused on two main areas, which are employment opportunities for citizens from EU-member countries, as well as import and export of goods and services. For the EU, this would serve as a strategic approach through which to ensure that it was minimizing the underlying implications associated with the occurrence of Brexit while establishing a new front through which to protect its member countries from possible economic downturns.

The trade talks between the EU and the United Kingdom will be designed in a way to ensure that although Britain is leaving the EU, it still seeks to maintain specific agreements with other countries within the EU. Additionally, this would mean that Britain would also be willing to engage in trade with other countries through its bilateral agreements as a way of advancing the economic positioning of the smaller EU countries. The EU may need to highlight its position on the need for having to ensure that it maintains its independence from the United Kingdom regardless of its engagement in the agreements. In other words, the EU would need to stress on the fact that it seeks to strengthen EU-member countries without having to consider the implications that Brexit is having in Europe.

Conclusion 

Globalization refers to the process of global interaction and integration between businesses and organizations to form a global economy that enhances international trade. The rocky relationship between the United Kingdom and the European Union contributed to the need for the withdrawal of membership from the European Union. In March 2017, the United Kingdom government initiated a formal process of withdrawing from the European Union by invoking Article 50 that addresses the EU treaty. The withdrawal of the United Kingdom from the European Union faces a wide range of implications that would influence the issue of international trade. The withdrawal, in this case, would mean that the EU will experience a loss of approximately 5% of the total budget following the Brexit. Brexit is also much more likely to have severe implications for the world economy while considering that it is expected to hamper international trade, especially within the context of the EU. Some of the strategies that the EU may adopt in reducing its dependency Britain’s membership include engaging new trade partners to increase export to other countries, increasing contributions from member countries to fund the EU’s budget, fostering policies on economic stimulation and growth for countries in Eastern Europe, and bilateral trade agreements with the United Kingdom in the aftermath of Brexit.

References 

Anil, K. (2018). De-Globalization and impact of Brexit on the global economy and SAARC nations.  International Journal of Business Ethics in Developing Economies ,  7 (1), 32.

Morales, L., & Andreosso-O’Callaghan, B. (2019). Challenges and Opportunities Brought to the Chinese Economy by Brexit and the New US Administration.  Journal of Emerging Market Finance , 0972652719846304.

Rehman, S. S., & Della Posta, P. (2018). The Impact of Brexit on EU27 on Trade, Investments and Financial Services.  Global Economy Journal ,  18 (1), 20170097.

Sznajderska, A. (2018). Brexit and Sterling Depreciation: Impact on Selected Economies. In  Brexit and the Consequences for International Competitiveness  (pp. 291-305). Palgrave Macmillan, Cham.

Yeo, L. H. (2018). The Lessons from Brexit and Its Impact on Singapore and ASEAN. The Implications of Brexit for East Asia  (pp. 143-157). Palgrave Macmillan, Singapore.