Brexit Consequences for the UK, the EU, and the United States

How Brexit Will Affect You

Brexit
••• Campaigners join Nigel Farage, leader of the UK Independence Party, in their support for the 'Leave' campaign for the EU Referendum aboard a boat on the River Thames on June 15, 2016 in London, England. Photo by Michael Tubi/Corbis via Getty Images

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 UK Prime Minister Theresa May submitted the Article 50 withdrawal notification to the EU. That gives the UK and EU two years to negotiate the following six main points.

  1. The UK does not want to continue allowing unlimited EU immigration.
  2. The two sides must guarantee the status of EU members living in the UK, and vice-versa. The same applies to work visas, which are not currently required.
  3. The UK wants to withdraw from the European Court of Judgment.
  4. The UK wants a "customs union" with the EU. That means they will not impose tariffs on each others' imports. They are free to tax imports from other countries.
  5. Both sides want to continue to trade.
  6. The EU will require a cash settlement from the UK to meet existing financial commitments. Recent negotiations put the figure at 40 billion to 55 billion euros.

    The withdrawal plan must be approved the European Council, the 20 EU countries with 65 percent of the population, and the European Parliament. Then the UK will copy the EU laws into its laws, which can later be amended or repealed. In March 2018, Prime Minister May said many laws would be similar to EU laws so the UK can keep trade and capital access.

    The hard Brexit means leaving the EU quickly with no restrictions other than a new free trade agreement. The soft Brexit would retain complete access to capital with restricted access of immigrants. It would remain in the customs union. The UK would allow European nationals to live and work in the country. It would also abide by the European Court of Judgment and EU laws without being allowed to vote. That is similar to Norway's relationship with the EU. 

    On March 19, 2018, the UK and the EU agreed to a 21-month transition plan that is similar to a soft Brexit. As of July 2, 2018, the soft Brexit is still most likely.

    The plan won't go into effect until the two parties agree on the terms of the UK's withdrawal. They must agree on how to avoid a hard border within Ireland.

    Consequences for the UK

    The main advantage for the UK is that it can again 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. 

    The UK will be able to tax without following EU guidelines. It also won't have to pay EU membership fees.

    The main disadvantage is that Brexit will slow UK growth. The UK's Treasury chief Philip Hammond reported that his country's growth would slow to 2.4 percent in 2018, 1.9 percent in 2019, and 1.6 percent in 2020. He forecast that exit fees will cost an extra 3 million pounds over two years.

    Another major disadvantage is the potential loss of Britain's tariff-free trade status with the other EU members. Tariffs raise the cost of exports, making British products higher-priced and less competitive than other EU countries' exports.

    It also increases prices of imports into the UK. One-third of the UK's food comes from the EU. Higher import prices creates inflation and lowers the standard of living for UK residents.

    Brexit would be disastrous for The City, the UK's financial center. It would no longer be the base for companies that use it as an English-speaking entry into the EU economy. 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.

    The UK will lose the advantages of EU state-of-the-art technologies. The EU grants these to its members in environmental protection, research and development, and energy. 

    Also, UK companies 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.

    Brexit will 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 UK's workers after Brexit.

    Trade and travel in the island of Ireland will become more complicated. Northern Ireland will remain with the UK, while southern Ireland remains a part of the EU. Prime Minister May rejected the EU proposal that there be a customs border between Northern Ireland and Great Britain. The UK is Ireland's second biggest export destination.

    But a customs border between Northern Ireland and the Republic of Ireland could reignite The Troubles. 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 35,000 people who commute across the border to go through customs on their way to and from work. The EU insists that the UK propose a solution. Otherwise, it must agree to the backstop of no customs border on the Irish isle. That would put the border between Northern Ireland and Britain.

    Under Brexit, the UK may lose Scotland. 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 UK. 

    One surprising consequence is that U.K. residents are feeling better about immigration. A 2018 survey found that 47 percent think that migrants are good for the economy. It up from 34 percent in 2015, and 21 percent in 2013. Researchers believe that the public debate over Brexit has educated people about the benefits of migrants. The economy has improved since the Brexit vote. Companies realize that, without migrants, they might not have enough workers to fill vacancies. This supply-side shortage could slow economic growth.

    Another consequence is that there are fewer immigrants. In September 2017, net migration from the EU had dropped to 90,000 for the previous 12 months. It had been 189,000 in the year prior to the Brexit vote.

    Consequences for the EU

    It could take up to 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 could strengthen anti-immigration parties throughout Europe. 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 UK 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. That's because 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 impact up to 2 million 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 UK off the main stage of the financial world. It creates uncertainty throughout the UK 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, Former Prime Minister David Cameron called 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, Scotland, Wales, and Northern Ireland wanted to stay in the EU. They were outnumbered by older voters who turned out in droves.