BREXIT SUMMARY FOR AMERICANS


A BREXIT SUMMARY FOR AMERICANS

Today the UK officially leaves the European Union and begins an eleven-month transition period. During this transition period the UK needs to negotiate the terms of its leaving, and to establish a new trading and regulatory relationship with the EU. It took the EU seven years to create a trading agreement with Canada, and the UK situation is far more complicated.

The reason that the UK wishes to leave the EU is to restore its own national sovereignty. The Brits would say that they signed on to the old Common Market, which was a European free-trade area. In the meantime, the Common Market is slowly morphing into a new form of government, essentially a United States of Europe. The UK has never fully integrated into the EU. The UK, unlike most other EU countries, still maintains its own currency and border controls. While it is possible to travel from Sweden to Spain without any border controls, there are still border controls to enter the UK.

Transition Issues to be Resolved

Immigration is one of the areas in which the UK wishes to reassert its sovereignty. At present, any citizen of any EU country can travel or even move to any other EU country. There are millions of EU citizens that now reside beyond their home countries. This is one of the key issues to be resolved. It will effect both UK citizens living and working in the EU as well as EU citizens living and working in the UK.

Tariffs are another issue to be negotiated. Typically, it takes years, if not decades, to negotiate tariff agreements. Upon leaving, the UK will no longer be viewed as a European partner, but rather as a European competitor.

Regulations are an important part of any trade deal. The EU maintains strict regulations related to product quality, public health and safety, labor standards, environmental issues, and a host of other topics. Simply stated, if the UK wishes to maintain trading relations with the EU, then it must accept EU regulatory standards. This becomes a key factor in national sovereignty, and part of the impetus for Brexit.

Border Controls are a critical issue. All good moving into and out of the EU most go through border checks. At present, there are approximately ten thousand trucks carrying goods across the English Channel every day without restrictions. Now, after the transition period, each truck will need to be stopped and inspected. This will create a logistical nightmare. At present there are no facilities for such inspections. One of the short-term issues will be shortages of food and medicines entering the UK. Trucks may be stuck at the border for days on end. The inconvenience to the truckers may severely restrict trade between the UK and the EU.

Irish Border: The Irish border will be one of the most difficult issues to resolve. At present, Northern Ireland is a part of the UK while the bulk of Ireland is an independent nation and part of the EU. The Irish border has seen decades of violence that has now been abated. Any attempt to create a hard border across Ireland will no doubt end in bloodshed. The Irish, both north and south, will demand an open border. The UK government is also demanding of an open border. The EU has demanded a closed border. The only reasonable solution to this issue seems to be that Northern Ireland will eventually leave the UK and become part of the Republic of Ireland.

Financial Services: London is a global financial powerhouse, second only to New York City. No one knows what will happen to the London financial services industry after the end of the transition period. Already, London banks and financial firms are setting up subsidiaries in EU countries. The people of London voted overwhelmingly to stay in the EU.

Fishing Rights are another issue to be resolved. In the 1970s the UK and Iceland got into skirmishes related to fishing rights. Now there will be disputes between the UK and EU countries until these can be resolved.

Effects of Brexit on the UK

Dissolution of the UK

At mentioned earlier, Northern Ireland will almost certainly leave the UK and become part of the Republic of Ireland. In Scotland, which voted overwhelmingly to remain in the EU, there is a growing independence movement. The five million people of Scotland may vote to become an independent nation and continue to be a part of the EU. If this were to happen then there would be another hard border issue to face between England and Scotland. Gibraltar, a British outpost at the entrance to the Mediterranean Sea, will almost certainly be absorbed by Spain over border issues.

Collapse of Trade and Commerce

The British economy has suffered the effects of Brexit even before it began. The British pound has fallen significantly. Businesses face a quandary of how to invest for an uncertain future. The major British manufacturing categories include beer, soft drinks, gas vehicles, diesel vehicles, and aircraft.

The vehicle industry is facing some severe issues. One of the great advantages of the EU was the free trade of goods across borders. Vehicles are assembled from numerous parts outsourced to various countries. Now, for UK manufactures, each time a part crosses a border it will incur a tariff. Also, any vehicles manufactured in the UK will incur tariffs when sold in the EU. The automotive industry is in a global crisis even without Brexit. Within five years there will be a total transition from internal combustion engine (ICE) vehicles to electric vehicles (EV). Tesla already has a higher market capitalization than the total of Ford, GM, and Fiat Chrysler combined.

Airbus is a company facing a crisis. Airbus is a consortium of the UK and France. This arrangement will become much more problematic at the end of the transition period.

Loss of Labor and Expertise

The UK will need to attract and keep the human resources it needs to operate its various industries. This need includes everyone from key experts in critical industries to agricultural workers. As populations relocate as a result of the chaos and uncertainty of Brexit, good help may become even harder to find.

Sharp Decline in GDP

Because of the disruption of trade, the loss of key personnel, likely collapse of the financial service industry, the further drop of the pound, the UK faces a bleak economic future. It is now, along with Germany and France, one of the economic power houses of Europe. But Brexit will cause the UK economy to shrink, and the UK will become a minor economic force in the region.

Effects of Brexit on the EU

Loss of UK support: The UK is one of the chief contributors to the EU, paying in more than it receives. The loss of this British support will mean that either EU programs must be cut, or that other countries will need to step up to cover the loss of British funding. Neither of these are a likely scenario.

Loss of a Major Trading Partner: The loss of the UK as a trading partner will have a serious impact on the EU. The loss of financial services from London will have a noted effect.

Need to Work Out New Trading Relationship with UK: Much of the time and energy of the EU will be absorbed in working out the new trading relationship with the UK. This will be particularly difficult as the preference of Boris Johnson seems to be for a “no-deal” Brexit. It is possible that the UK will finally crash out of the EU at the end of the transition period with no deal at all. This will create a situation of chaos that will take years, if not decades, to resolve.

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