This case study will discuss the Brexit, which refers to the ongoing exit of the United Kingdom (U.K.) from the European Union (EU). The potential impacts and effects this departure had on the EU, the U.K., as well as the rest of the world, will be economically analyzed to better understand the specific issues. The research conducted will help explain the different strategies the EU can implement to be less dependent on the Britain membership in the future. The EU and other effected nations must recognize the domestic impact of the Brexit on the flow of goods in and out of Britain. Currently, nations are moving towards globalization to remain relevant in an effort to lower labor and productions costs. The U.K. needs to focus on strategically negotiating trade deals while creating new, stronger relationships with the EU and other foreign countries. The outcome of such trade deals could potentially be deciding factors on future business with the U.K. regarding financial assets, imports and exports, and international laws.
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Globalization is a term that describes the interdependence of nations worldwide on free trade. It is the spread of goods, services, information, and jobs across national borders. Globalization has effects on numerous aspects of living such as social, cultural, and political movements (Kopp). A social movement shows the way globalization leads to greater interaction among diverse nations. Culturally, globalization is the exchange of ideas and values across different societies. Politically, attention has been shifted on intergovernmental organizations to create and enforce international laws due to globalization. The evolution of globalization has integrated free market systems through trade agreements over the last 20 years and has increased industrialization, as well as financial opportunities globally (Kopp).
A global phenomenon that will be discussed within this case study is the sharing of growth production between foreign nations, which has been driven by the improvements of both communication and transportation (Globalization of Technology). This new trend relates to the process of economic globalization of production meaning nations have begun driving interaction with others in search of low-cost labor, creating competitive advantage, and growing trade development. The supply, demand, and environmental factors of the world are initiating companies to expand their portfolio and operate in the diverse, powerful market. This market ensures countries continue to implement and participate in trade negotiations, reduce prices to compete with foreign nations, and relocate manufacturing to more cost-efficient locations.
The world is ever evolving, and global businesses must invest in research and development, or take a high-risk of staying stagnant with a potential to lose money, consumers, and investors. This case study will first expand on the history and the evolution of the Brexit, as well as briefly discuss the current state of the relationship between the EU and the U.K. Next, theorized impacts, arguments, and consequences will be discussed and analyzed for better understanding of the Brexit’s effect on all nations involved. Lastly, a detailed list of different strategies the EU, the U.K., and other nations can utilize to reduce dependency on the U.K.’s involvement in the EU will be explored and researched.
HISTORY OF THE BREXIT
The relationship between the U.K. and the EU has been weak for some time and complications between the two countries dates to almost half a century ago (Pruitt). The U.K. originally made it into the EU in 1973, however the country was back on the verge of dismembering just two years later due to many disagreements in the public and political sectors. There were many different viewpoints regarding British payments, citizen rights, economic stances, and divided parties. The economic unrest of all countries utilizing the Euro, as well as a migrant crisis, kept fueling Britain’s desire to depart from the EU due to what was called the financial crisis of 2008 (Kirby). The immigrant situation led citizens to begin fearing for the future of Britain because of refugees coming from the Middle East and Africa. Again, in early 2011, support began to grow among British voters for the U.K. to become an independent nation and created another drive against the EU. In 2013, the prime minister pushed for a referendum on whether the U.K. should remain in the EU which eventually occurred in 2016. Finally, on March 29, 2017 the official order was delivered to the European Union stating the countdown of to the Brexit (Pruitt). A count-down of two years began with the U.K. being provided time to figure out details of the Brexit, up until late 2019. Still, the Brexit deal was pushed out once again until January 29, 2020 when the EU parliament approved, and the U.K. was officially a non-member after 40 plus years of partnership (Kirby).
EFFECTS OF THE BREXIT
The Brexit does not only affect the U.K. and the EU, but it also creates implications in growth, trade, jobs, and currency markets for nations worldwide. The Brexit’s biggest impact is on economic growth concerning the uncertainty surrounding the entire deal. The estimated hit on the economic growth of the U.K. alone has decreased by 6.7% in the last 15 years due to length of time the Brexit dragged on. Not only is the U.K. at an economic loss, but the EU could be about .7% decline of its overall GDP after the Brexit (The Economic Impact). Another factor of economic consequences was the drop of the British pound when the Brexit referendum occurred (Amadeo). As a result, this helped exports but raised the prices of imports which in effect will have a direct impact on business trade deals with other nations.
Trade and Jobs
Another effect of the Brexit on trade will be the elimination of Britain’s tariff-free trade status with other EU members (Amadeo). An introduction of tariffs will have an impact on both imports and exports. Tariffs will increase the price of imports into the U.K. where more than one-third of the imports come from the EU (Amadeo). The higher the import prices, the bigger the chance of creating inflation in the country. Tariffs also increase the cost of exports which will hurt the U.K. exporters because their products become more expensive in Europe. U.K. companies could also potentially lose their ability to bid on public contracts in the EU, including influences in banking services, airfares, and the internet (Amadeo). An impact in jobs is another effect the Brexit will have on the U.K., the EU, and other countries. The Brexit will result in many jobs not being available for U.K. workers which could lead to a rise in unemployment rates. Currently, employers are having trouble in finding experienced applicants, and with the Brexit, this issue could possibly become even bigger. Overall, this deal between the U.K. and the EU puts many jobs at risk in both counties.
The currency market is heavily impacted by the Brexit deal. After the Brexit vote, both the Euro and the British pound fell, while the value of the dollar increased. This increased strength of the dollar is not beneficial for the American stock market because it makes shares more expensive for foreign investors to own (Amadeo). Once the deal was completed, the markets had to shift focus from the political risk of the Brexit to the economic and financial disruptions the Brexit implemented (Kollmeyer). These disruptions of businesses include the need for redirection of supply chains, increased business costs, and the reevaluation of capital investments. The present state of the stock markets can potentially result from the economic effects on globalization throughout the world.
FUTURE STRATEGIES OF THE IMPACTED NATIONS
All nations effected by the Brexit need to consider different strategies that can be executed to reduce dependency on the U.K.’s membership to the EU. The main nations to be discussed will be the U.K., EU, and the United States (U.S.).
The U.K. will begin negotiations focused on trade with a desire to accomplish zero tariffs and quotas (Sloat). The United Kingdom must concentrate on trade due to the fact that 45% of exports and 53% of imports are being supplied by the EU meaning they rely more heavily on the trade partnership (Felbermayr). The U.K. can benefit from regaining control over their policymaking with strategies focused on the working class, immigration, and the economy of globalization. The key to reducing their dependence on the EU, the second largest economy in the world, will be to develop a set of actions that the U.K. can benefit from while the EU continues to be constrained by the huge scale of economy and people they are expected to manage (Liu). With this said, the U.K. will have to cooperate and align, rather than aggressively compete.
The economic relationship between the U.K. and the EU will be important negotiating objectives for both. The EU will want to focus on more of a balanced partnership with expectations set on social and environmental standards, as well as tax (Sloat). This viewpoint is because the EU wants to maintain protection over their human rights as well as rely less on the U.K. involvement. The U.K. only accounts for 7% of exports and 4% of imports for the EU, which supports the EU’s need to focus more on social and environmental aspects, rather than trade (Felbermayr). The EU must also continue to manage their relationships with other nations in order to ensure their abundance of resources stay strong and maintained.
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The United States
The U.S. could absolutely implement different strategies with both, the U.K. and the EU, to ensure stability and reduction of dependency on the U.K.’s participation in the European Union. A trade negotiation deal between the U.S. and the U.K. could have tremendous effects on the U.S. economy and would continue to strengthen the partnership between the two countries, and in return would reduce the dependency of the U.K. in the EU. By the ongoing occurrence of the Brexit alone, the Unites States has risen to global dominance due to the ongoing falling out of both the U.K. and the EU over all these years. The U.S. should continue to support and conduct business with the United Kingdom and the European Union, while attempting to capitalize on all possible benefits the Brexit has to offer.
SUMMARY AND CONCLUSION
In summary, the Brexit will have detrimental impacts on the entire EU including the U.K. as well as other nations too. These damages will directly affect globalization in regard to economics, politics, and social cultures. The sharing of growth production will be heavily halted with the Brexit deal going into effect in 2020 specifically between the U.K. and the EU. The U.K. will be held responsible for collaborating with other countries around the world on new rules for buying and selling goods and services (Edington). This could potentially have a tremendous impact on their own imports and exports which is not beneficial for the already effected U.K. economy. From a forward perspective, there will be numerous economical aspects that will require in depth attention to successfully aide the U.K. in the future.
The Brexit can be considered a proposal against globalization in which the U.K. is attempting to withdrawal the share of goods with the EU, which is a non-value-added movement in the wrong direction. The Brexit focuses on the long-lasting troubled relationship between the EU and the U.K. and highlights the differences they share in economical, social, and political views. Many countries have differences when it comes to running an economy. The bigger issue with the Brexit is the fact that two countries endured years of the unknown and could not come to any agreement. In the diverse global market of today’s economy, it is crucial to innovate and evolve with the world in order to gain or maintain a competitive advantage. The Brexit creates lasting consequences on growth, trade, jobs, and currency markets. It is the unenviable battle between two nations of great power that will go down in history as either a foreseeable mistake or a great opportunity move.
- Amadeo, K. (n.d.). Brexit Consequences for the U.K., the EU, and the United States . The Balance. Retrieved from https://www.thebalance.com/brexit-consequences-4062999
- Felbermayr, G. (n.d.). Brexit: A Hard-but-Smart Strategy and Its Consequences. Intereconomics.
- Edgington, Tom. “Brexit: What Will Change after Friday, 31 January?” BBC News, BBC,1 Feb. 2020, www.bbc.com/news/uk-politics-51194363
- Globalization of Technology: International Perspectives. (n.d.). Retrieved February 26, 2020, from https://www.nap.edu/read/1101/chapter/11#87
- Kirby, J. (2020, January 31). A short history of the long road to Brexit. Retrieved February 28, 2020, from https://www.vox.com/2020/1/31/21083573/brexit-news-boris-johnson-timeline-eu-uk
- Kollmeyer, B., & Watts, W. (2019, October 17). What a Brexit deal would mean for U.S. stocks and global investors. Retrieved February 28, 2020, from https://www.marketwatch.com/story/what-a-brexit-deal-would-mean-for-us-stocks-and-global-investors-2019-10-17
- Kopp, C. M. (2020, January 29). Learn About Globalization. Retrieved March 1, 2020, from https://www.investopedia.com/terms/g/globalization.asp
- Pruitt, S. (2017, March 29). The History Behind Brexit. Retrieved February 27, 2020, from https://www.history.com/news/the-history-behind-brexit
- Sloat, A. (2020, January 30). Brexit endgame: Britains EU departure marks the end of Brexits beginning. Retrieved March 1, 2020, from https://www.brookings.edu/blog/order-from-chaos/2020/01/30/brexit-endgame-britains-eu-departure-marks-the-end-of-brexits-beginning/
- The Economic Impact of Brexit. (n.d.). Retrieved February 28, 2020, from https://www.rand.org/randeurope/research/projects/brexit-economic-implications.html
- Liu, C. (2019, November 7) The Need for a Brexit Strategy. Retrieved March 1, 2020, from https://thinkers50.com/blog/n
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