Brexit: what you need to know as the deadline approaches

In just under a month, the United Kingdom could be leaving the European Union; that’s right, a marriage that has existed since 1973 appears to be reaching its end as Brexit becomes imminent.

A brief history of Brexit

On March 29, 2017, the United Kingdom parliament invoked Article 50 of the Treaty on European Union, which allows any member country to withdraw from the EU. Hence, “Brexit” began; the UK would no longer have access to the EU’s single market – which allows for free movement of goods and services – or the customs union, which regulates tariffs.

In order to create the best scenario for both parties, the UK and EU have been collaborating on an official Brexit withdrawal agreement that would outline Britain’s procedure in exiting the union. Under the agreement, the UK would remain a part of both the single market and customs union until December 2020. In addition, Britain would operate under the laws of the European Union but would not vote on EU decisions during this time period.

In a perfect world, this transition period would ease the process for businesses until new trade negotiations are met. Yet much to the dismay of Prime Minister Theresa May and the business community in the UK, this agreement has been deferred once and overwhelmingly rejected twice since November of last year. May received an extension to reach an agreement by April 12, or else Britain would leave the EU without a deal in place, wreaking havoc for British businesses. If the plan is approved, the EU will push Brexit to May 22. The Prime Minister has vowed to resign if Parliament passes her Brexit deal.

The implications of Brexit, deal or no deal

May faces the impossible struggle of appeasing both her constituents and the European Union. Without a reasonable agreement, the United Kingdom puts itself in a suboptimal global trade situation, which could bludgeon their economy. State-renowned economist Alan Maguire provided his thoughts on how Prime Minister May should proceed with trade negotiations.

“The best Brexit is a hard Brexit. Get out; Don’t be half in and half out,” Maguire said. “Because now you’re giving regulatory power to the European Union, which doesn’t want you to go. It’s like breaking up with your girlfriend and saying, ‘You get to pick who I date.’ That’s sort of the pressure that was there.”

Although a transitional period would smoothe the process for the UK, it might not be best in the long run. Maguire explains that under the agreement Britain would be subject to the EU’s rules and would not be able to make certain trade agreements as it would if it operated independently.

If Britain severs ties altogether, it could offer a quid pro quo trade relationship with the U.S., Maguire explains. “If Britain leaves the EU, they will immediately reverse and turn West,” he said. “Given our common history, they will immediately form a bilateral trade agreement with the United States. With Canada and Mexico, that would make them like our fourth partner. We love British stuff too, so that would be the logical response.”

Consequences for the U.S.

If Brexit occurs without a deal, the value of the pound will surely plummet. Consequently, the dollar will rise in value. At first glance, this might seem beneficial to the U.S. and its economy, but in reality, the opposite is true. U.S. shares and exports will become more expensive to British investors and consumers, which will decrease spending.

In addition, many businesses run their EU trade operations through the UK. If the UK severs itself from the European Union, this complicates trade negotiations for many U.S. businesses. A hard exit could increase trade timetables and tariffs. Essentially, it creates a microeconomic headache for U.S. corporations, which could slow economic growth at a macroeconomic scale.

The flip side according to Maguire is that Britain could certainly reach a new win-win trade agreement with the US, even if they do fully divide from the EU. In any case, all eyes will be on Prime Minister May and Great Britain on April 12th.

Ben Norman

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