What Can We Expect to See After the Brexit?

London, United Kingdom (TFC) – On 23 June 2016, the United Kingdom held a referendum on whether the nation should leave the European Union. This historic vote resulted in an unexpected victory for the Leave side, giving the government a mandate to start negotiations to leave the EU. Immediately following this news, financial markets and the Pound Sterling plummeted causing financial chaos around the globe. This reaction demonstrates that the international community is fearful about the impacts of a Brexit. As a result, it is worth exploring the impacts that it is likely to have.

The campaign season leading up to Brexit referendum was arduous and marred by deliberate misinformation, xenophobia, and nativism. After this campaign, the referendum resulted in an unexpected victory for the Leave side, which won 52% of the vote. However, this referendum, which was not legally binding, does not automatically withdraw the UK from the European Union. In order to withdraw, the UK will need a majority vote in Parliament to repeal the web of legislation that allowed the UK to accede to the EU. In addition, the UK will need to invoke Article 50 of the Lisbon Treaty to formally withdraw from the EU. Once Article 50 is invoked the UK will have two years to negotiate the terms of its departure.

This lengthy process creates many uncertainties for the United Kingdom. Many questions about the impact of the Brexit remain unanswered and much of the impact will be determined by how the UK performs in its exit negotiations with the EU. However, despite this uncertainty, there are a few impacts that are likely to occur.

Economic Slowdown

Financial markets reacted to the Brexit in a swift and harsh manner. The British stock market opened and immediately suffered major losses, instantly wiping out up to £200 billion pounds of wealth. This was accompanied by record depreciation of the Pound Sterling, which fell to its weakest point in 31 years. The losses from the depreciation of the Pound caused the UK to be overtaken by France as the 5th largest economy in the world. In addition, S&P announced that it would downgrade the UK’s credit rating as a result of the Brexit vote.

While the market’s reaction to the Brexit was bad, it will almost certainly get worse. While the UK has not yet officially left the EU or the European Economic Community, it’s post-Brexit relationship with the EU has yet to be defined. As a result, it is unclear if the UK will continue to have free trade agreements with EU member states or with the numerous other countries that the EU has free trade agreements with. If the UK is unable to maintain its place within these free trade agreements, it will hinder their foreign trade as they would then be subject to more restrictive tariffs and other trade barriers.

In reality, the EU will likely forge some sort of trade agreement with the UK. However, since the EU wants to discourage other member states from leaving, it is likely that they would try to force the UK to accept terms of trade that are worse than they currently enjoy. If this were to occur, it would negatively impact the British economy as it would make it more difficult for the UK to engage in international trade. This could induce some businesses to move to EU countries so that they can have free access to a larger market. However, even if the UK were to negotiate favorable terms of trade, the Brexit will still have a negative short-term impact on the British economy. The uncertainty surrounding Britain’s post-EU future is not conducive to investment as it creates regulatory risk for business. As a result, it is very likely that the Brexit will discourage investment and economic activity in the UK.

Pixabay.com

Pixabay.com

Civil Unrest

The results of the referendum showed a major generational split. Older voters favored the Brexit whereas voters under the age of 35 overwhelmingly voted to remain. This generational divide has left feelings of resentment among British youth, who feel that the electorate voted for the Brexit without considering the impacts that it would have on their future. If the Brexit causes major economic damage to the UK, British youth will probably begin to feel that their future was stolen from them. This anger could easily boil over and spark protests and civil unrest. The risk of civil unrest is only amplified by the political turmoil that is rocking both the Conservative and Labour parties. In addition, it is believed that the Brexit vote has emboldened the far-right, leading to a wave of xenophobic incidents. This will likely set the stage for racial tension and more frequent clashes and crowd violence between far-right groups and anti-fascist protesters.

The End of the United Kingdom

I previously wrote about how the Brexit would likely cause the demise of the United Kingdom. If the Brexit occurs, the end of the United Kingdom is a near certainty. Despite the fact that the majority of the voters in the UK voted to leave the EU, a large majority of Scottish and North Irish voters opted to remain. This has created a situation where Scotland and Northern Ireland could be forced out of the EU against their will. This, combined with the acrimonious relationship that both of these countries have historically had with England, makes it almost certain that secessionists in Scotland and North Ireland will demand a referendum on their independence. England would have little leverage to prevent these referendums, as any attempt to do so would appear hypocritical given their vote for the Brexit. If these bids for independence were to be successful, it would effectively destroy the territorial integrity of the United Kingdom.

Globalization vs. Protectionism

Despite all the rhetoric during the Brexit campaign season, this vote was ultimately a referendum that pitted globalization against protectionism. Unfortunately, the British people voted for protectionism. As I previously wrote, countries that pursue protectionism have historically suffered heavy economic damages. While I wish the best for the UK, there is little reason to believe that the country will not continue to suffer severe economic damage into the foreseeable future. The best we can hope for is that the United States and other countries will learn from this blunder and reject protectionism. Failure to do this will cause additional damage to the global economy and untold misery for millions of people.