Question

The British withdraws the EU, Does any affect on the trading market? Will the Pound become weaker? What is your suggestion and opinion? 2] Please write two full pages with your supportive information plus references. References will not the part of two full pages.

Answer 1

The European Union acts as the highest form of Trade agreement allowing all its member countries not only unilateral tariff free access to each other’s market and human resources but it also mandated that every member country imposes the same tariff on rest of the world. It allowed people of the EU to move around unbarred through Britain taking up its jobs and vice-versa. The EU has its own set of economic and monetary policy and its common currency (Euro). British withdrawing from EU implies its attains autonomy over its every central issue such as monetary, fiscal trade and economic policy, and also, independent use of its own currency, i.e., the Pound. Now the WTO has mandated some rules to be abided by countries who don’t allow free trade. Now that Britain is a separate economic / trade entity from EU it shall imply serious consequences on its economy since people, money, services and goods no longer move freely between Britain and EU. This might lessen the cost effectiveness of many businesses based throughout these newly formed two markets leading to disinvestments. This means rise in transfer prices for business which has multiple facilities operation around Britain and in EU. Statistics show mixed signals on growth whereas the value of Pound is now 10% lower than dollar and 10-15% lower than the euro, this makes British goods cheaper in outside markets which might raise its exports but that would also imply costlier imports. Further unless Britain secures a Free trade and free movement deal like Norway with Eu the trade shall be according to WTO rules and this hall discourage business since border checks and tariffs are now implementable. Since London is a financial hub, businesses taking strategic investment decisions about factories/ logistics & warehouses, would normally consider the Britain, however, these decisions are the ones that may be postponed. Decisions which cannot be postponed may become biased in favour of non-British locations. Moreover EU has 36 agreements with 58 non EU countries, Britain(UK ) will not receive any benefits from them once they leave. Negotiating such a high amount of deals is both a time consuming as well costly process and the attractiveness of UK as a foothold of Europe shall also decrease to its trading partners once its no more a part of EU.

The one thing to note is the pending negotiations between the UK & the EU . On the one hand, in order to avoid Brexit setting an example, or encourage other Member States to choose from different benefits and costs of EU membership, there would be an incentive not to make any exit terms too favourable for the UK but many EU countries trade in proximity with the UK and any increase in tariffs or NTBs would also hit those countries. A favourable FTA with the UK would increase profits for the EU.   The countries in Eastern and Southern Europe, member of EU do less trade with UK and therefore would benefit not be much benefitted from a new free trade agreement than countries such as Germany, Belgium or Netherlands or Ireland.

All these decisions are expansive and time consuming and hence effects the whole socio – economic structure of UK and many member countries of the EU, thus a turmoil state is expected to persevere alongside the normal lives of the citizens and before the turn of the next decade it is not possible to pinpoint the effects- favourable or disastrous of the Brexit with absolute precision.