Brexit Consequences for the U.K., the EU, and the United States

How Brexit Affects You

Brexit
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Brexit is the June 23, 2016, referendum where the United Kingdom voted to leave the European Union. The residents decided that the benefits of belonging to the unified monetary body no longer outweighed the costs of free movement of immigration. Brexit is the nickname for "British exit" from the EU. 

On March 29, 2017, the U.K. Prime Minister Theresa May followed the will of the voters. She submitted the withdrawal notification to the EU. It gave the U.K. and EU until March 29, 2019, to negotiate an agreement.

On March 19, 2018, the United Kingdom and the EU that is similar to a "soft Brexit." It is a backstop in case a formal agreement doesn't occur before the deadline. A " the EU quickly with no restrictions other than a new free trade agreement.

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On November 14, the plan. On December 12, of no-confidence. But May still faces difficulty getting Parliament's approval of the plan.

The the three choices facing her country:

  1. Keep the deal. The U.K. doesn't have the economic clout to negotiate a better one.
  2. Leave with no deal. That would be worse than the hard Brexit option that the opponents favor. Without a trade agreement, ports would be blocked and airlines grounded. In no time, imported food and drugs would run short. 
  3. No Brexit. As the negotiations have dragged on, many people are campaigning to remain in the EU by having another referendum. They argue that voters did not understand the economic hardships that Brexit would impose.

    On December 10, the that the U.K. could revoke its Brexit application unilaterally. No other EU body is needed to approve the withdrawal.

    The nine possible outcomes.

    Brexit Plan Summary

    The . One is the binding withdrawal agreement. The other is a non-binding set of principles to guide future negotiations.

    with the EU for an unspecified period. This continues the trade that both parties wanted. The two sides will not impose tariffs on each other's imports. They are free to tax imports from other countries. Critics want the freedom to negotiate separate trade deals with other countries.

    The U.K. retains complete access to capital. The 3 million living in the U.K. can continue to live and work in the country without work visas. The 1.3 million U.K. citizens can continue to do the same in the EU.

    The U.K. would also abide by the European Court of Judgment and EU laws. But, since it's no longer a member of the EU, the U.K. can no longer vote on the laws. That is similar to Norway's relationship with the EU. But critics oppose this arrangement.

    Since the U.K. remains in the EU customs union, it prevents a "hard border" between northern and southern Ireland. Northern Ireland is part of the U.K. and southern Ireland is an independent country and a member of the EU. Until 1998, this was a militarized border due to sectarian violence that left more than 3,500 people dead.

    But once the transitional period is over, this issue must again be confronted. The if it negotiates a trade agreement with the EU that eliminates border controls in Ireland. It might also find a technological solution that avoids border infrastructure.

    The UK will pay a 50.7 billion euro "divorce bill." It fulfills any remaining financial commitments.

    The deal is similar to the "" offered by the European Council on August 9, 2018. The would keep the U.K. in the single market for trade while allowing it to restrict immigrants. In return, the U.K. must abide by all EU environmental, social, and customs rule. The deal is what the British dependency of Jersey already has. It would avoid borders between Northern Ireland and the U.K. or Ireland.

    Next Steps

    On December 10, putting the plan to a vote. Reports were that the U.K. Parliament would vote against it. She will meet with EU leaders on December 13 to negotiate a deal that would pass Parliament.

    Based on May's assurances, the of its leaders who approved the agreement on November 25. that it will be involved in any trade agreement that involves Gibraltar. The U.K. territory is Spain's neighbor and trading partner.

    The U.K. and EU must draft a detailed trade declaration. Another EU summit would rule on that declaration in December. It must then be approved by the European Council, the 20 EU countries with 65 percent of the population, and the European and U.K. Parliaments.

    Once those major hurdles are overcome, then the U.K. will copy the EU laws into its laws, which can later be amended or repealed. In March 2018, many laws would be similar to EU laws so the U.K. can keep trade and capital access.

    Consequences of the Deal for the U.K.

    The transition plan does not allow the U.K. to prohibit the free flow of people from the EU. That was the primary reason people voted for Brexit. They were concerned about an increase in refugees from Africa and the Middle East. 

    Brexit's biggest disadvantage is that it's slowing the U.K.'s economic growth. Most of this has been due to the uncertainty surrounding the final outcome.

    Uncertainty over Brexit has slowed the U.K.'s growth to . U.K.'s Treasury Chief that it would slow to 1.9 percent in 2019, and 1.6 percent in 2020. A resolution should allow the economy to improve to 2 percent in 2019. The British pound is 14 percent lower than before the referendum. That helps exports but increases the prices of imports. The pound should strengthen once the deal is approved.

    Critics say the U.K. must still follow EU guidelines and pay EU exit fees. But, since it's no longer a member, it won't be able to vote on those guidelines.

    Consequences of a Hard Brexit

    Critics of the agreement prefer a hard Brexit. That could mean the loss of Britain's tariff-free trade status with the other EU members if a new trade agreement weren't negotiated. Tariffs would raise the cost of exports, making British products higher-priced and less competitive than other EU countries' exports.

    A hard for The City, the U.K.'s financial center. It would no longer be the base for companies that use it as an English-speaking entry into the EU economy. The reported that 5,000 jobs could be lost. That could lead to a real estate collapse in The City. Many new office buildings are under construction. They may sit empty if The City's financial services industry moves elsewhere. have already started to fall.

    The United Kingdom would also lose the advantages of EU’s state-of-the-art technologies. The EU grants these to its members in environmental protection, research and development, and energy. 

    Also, U.K. companies would also risk losing the ability to bid on public contracts in any EU country. These are open to bidders from any member country. The most significant loss to London is in services, especially banking. Practitioners will lose the ability to operate in all member countries. This could also raise the cost of airfares, the internet, and even phone services.

    A hard Brexit would hurt Britain's younger workers. Germany is projected to have a labor shortage of two million workers by 2030. Those jobs will no longer be as readily available to the U.K.'s workers after Brexit.

    Trade and travel on the island of Ireland would become more complicated under a Hard Brexit.

    Northern Ireland would remain with the United Kingdom, while southern Ireland remained a part of the EU. the EU proposal that there be a customs border between Northern Ireland and Great Britain. The United Kingdom is Ireland's second-biggest export destination.

    But a customs border between Northern Ireland and the Republic of Ireland could . It was a 30-year conflict in Northern Ireland between mainly Catholic Irish nationalists and pro-British Protestants. In 1998, it ended with the promise of no border between the north and south Irish island.

    It would also force across the border to go through customs on their way to and from work. The  that the United Kingdom propose a solution. Otherwise, it must agree to the backstop of no customs border on the Irish isle. That would create a border between Northern Ireland and Britain.

    Under a hard Brexit, the . First, Scotland will try to stop Brexit by voting against it. But Scotland doesn't have the authority to do that. It could then decide to join the EU on its own, as some countries within the kingdom of Denmark have. Last but not least, Scotland's leader has also warned she may call for another referendum to leave the United Kingdom. 

    Consequences of No Deal

    If the U.K. Parliament doesn't approve the deal, it's unlikely another one can be negotiated before the March 2019 deadline. The U.K. would no longer be a member of the EU, and it would have no trade agreement. Custom delays . The U.K. is vulnerable because an extreme heat wave and summer drought caused by global warming have already reduced food output.

    Tariffs would be reimposed. 74 percent for tobacco, 22 percent for orange juice, and 10 percent for automobiles. That would increase prices of imports into the U.K.  comes from the EU. Higher import prices would create inflation and lower the standard of living for U.K. residents.

    In addition, a "No Deal" option would many of the consequences of the "Hard Brexit."

    Consequences for the EU

    It has taken two years to negotiate the terms of a Brexit. Initially, some EU members asked for an earlier withdrawal. Germany's Chancellor Angela Merkel urged patience to allow the best outcome for all.

    The Brexit vote is strengthening anti-immigration parties throughout Europe. As a result, Germany's Chancellor Merkel has already announced she will not run for re-election. If these parties gain enough ground in France and Germany, they could force an anti-EU vote. If either of those countries left, the EU would lose its most robust economies and would dissolve.

    On the other hand, new polls show that many in Europe feel a new cohesiveness. The U.K. often voted against many EU policies that other members supported. International Monetary Fund Director Christine Lagarde said, “The years are over when Europe cannot follow a course because the British will object.” She added, “Now the British are going, Europe can find a new elan.” 

    Consequences for the United States

    The day after the Brexit vote, the Dow fell 610.32 points. Currency markets were also in turmoil. The euro fell 2 percent to $1.11. The pound fell. Both increased the value of the dollar. That strength is not good for U.S. stock markets. It makes American shares more expensive for foreign investors. As a result, gold prices rose 6 percent from $1,255 to $1,330. 

    Brexit dampens business growth for companies that operate in Europe. U.S. businesses are the most significant investors in Great Britain. They invested $588 billion and employed more than a million people. These companies use it as the gateway to free trade with the 28 EU nations. 

    Britain's investment in the United States is at the same level. That could U.S./British jobs. It's unknown exactly how many are held by U.S. citizens. The uncertainty over their future will dampen growth. 

    Brexit is a vote against globalization. It takes the United Kingdom off the main stage of the financial world. It creates uncertainty throughout the U.K. as The City seeks to keep its international clients. U.S. stability means London's loss could be New York's gain.  

    Causes

    In June 2016, for the referendum. He wanted to stop pro-Brexit opposition within his Conservative party. He thought the referendum would resolve the issue in his favor. Unfortunately for him, the anti-immigration and anti-EU arguments won.

    Most of the pro-Brexit voters were older, working-class voters in England's countryside. They were afraid of the free movement of immigrants and refugees.

    They felt that EU membership was changing their national identity. They didn't like the budgetary constraints and regulations the EU imposed. They didn't see how the free movement of capital and trade with the EU benefited them. 

    Younger voters and those in London, wanted to stay in the EU. They were outnumbered by older voters who turned out in droves.