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What is the Impact of Brexit to Everyone?

2/4/2017

2 Comments

 
Dr, Wordman

Abstract
 
52% of UK voters (over 33 millions had their say) passed the “Brexit” referendum, Though completion of Brexit may take two years, UK’s ‘leave’ vote still came as a shock and created a serious impact at least initially on financial markets throughout the world in terms of stock prices and currency exchange rates. In the weeks after the Brexit vote, world leaders and political analysts have begun to offer comments on the Brexit impact from both political and economical point of views. While so many news reports, interviews and opinions relating to the impact of Brexit are circulating in the mainstream and organic media, it is prudent to do a summary review on the ‘impact’ issue from an impactee’s perspective.

 
_________________________________________________________________________________________
 
On June 23rd, 2016, 52% of UK voters (over 33 millions had their say) passed the “Brexit” referendum, that is, they want to leave the 28-member European Union. On July 9th, the British government rejected a petition signed by more than 4 million people calling for a new poll on whether Britain should stay or leave EU. The petition was actually started by a ‘leave’ voter worrying that the first poll might turn out to be a ‘stay’ vote. So the rejection is a right decision thus Brexit is certain. The UK Prime Minister David Cameron has said he will resign in October and let a new PM to carry through the Brexit. The negotiation procedure to leave EU may take two years according to Article 50 of the Lisbon Treaty which says that a member state seeking to leave the EU has two-years to complete negotiations to withdraw and define its post-exit relationship with the union.  
 
Though completion of Brexit may take two years, UK’s ‘leave’ vote still came as a shock and created a serious impact at least initially on financial markets throughout the world in terms of stock prices and currency exchange rates. In the weeks after the Brexit vote, world leaders and political analysts have begun to offer comments on the Brexit impact from both political and economical point of views. The political concerns are national security, military development and spending as well as UK’s role in NATO and relationship with the U.S. The economic concerns are Britain’s economy, trade relations with EU members and other large trading partners such as the U.S. and China. Naturally, the impact of Brexit is perceived and will be felt differently by the U.K. vis-à-vis the EU and the other countries in the world, such as China, India and Russia. While so many news reports, interviews and opinions relating to the impact of Brexit are circulating in the mainstream and organic media, it is prudent to do a summary review on the ‘impact’ issue from an impactee’s perspective. Surely, different impact may be felt immediately and possibly very differently in the long run by everyone.
 
The immediate impact of Brexit on UK is seen in the sharp drop of UK real estate values as well as her dterling exchange rate. Since the yes vote of 52% is not a super majority, it can be expected the debate on Brexit’s pro and con would be continuing and the speculation of its long-term effect is churning many Britons’ mind. Cameron’s resignation and the selection of a new PM most likely a person well schooled on the EU matter will dominate the British political scene.(*Theresa May, a parliament member since 1997 will be sworn in on 9/2) It is interesting to point out quotes from Barclays Bank that Europe would be worse affected by EU than by UK and the U.K. might become a ‘safe’ haven for investors. Brexit will open a Pandora box for the crisis laden EU. As EU politics turns for worse, Brexit may lead to Grexit, Itexit, etc. However, there also exists views that the impact of Brexit through trade and investment would be most severe for UK than for EU in the long run considering regulatory divergence over time which will affect trade volume and investment attraction. These opposing views are certainly dependent on the political situation of future EU and UK.
 
While Brexit had a sharp impact on the UK real estate, its effect on the U.S. real estate market is minimal. In fact, perhaps indirectly because the concern of Brexit, the FED did not increase the interest rate in 2016 and Brexit causes more investors to buy US treasury bills driving interest rate down. This helps mortgage interest staying low beneficial to the housing market. The 401K investors did see a drop of their investment value due to Brexit, but likely to be a transient effect. Since the exchange rate of the pound versus the dollar dropped after the Brexit vote, it makes UK a cheaper vacation spot hence may draw more American tourists this summer. Americans have always been a large part of UK tourism. Overall, the impact of Brexit is incredibly modest for the U.S.
 
China is another country very much concerned about the possible Brexit mostly for economic reasons. UK only accounts for 2.6% of China’s exports so economists expect the trade impact of Brexit on China limited. However, China values Sino-EU relations both economically and politically; a strong EU is in the national interests of China. Hence China like the U.S. did not want to see UK leaving EU. UK-China relationship has entered into a golden era with trade agreement and cross investments. While the U.K. is eyeing China’s money and market, China sees the U.K. as a springboard and liaison to EU in her long-term strategic view of forming a strong Sino-EU relationship. China has established a RMB exchange center in London, with UK exiting EU, China is likely to establish another exchange center in the European Continent. Brexit definitely disappoints China though not as much as it disappoints the U.S., since she depends on the U.K. as a loyal strong national security partner and a major supporter of NATO. In the long run, Brexit will burden China and the U.S. diplomatically in their triangular relationship with EU for losing an effective liaison.
 
Post Brexit vote, President Obama’s administration could not help being disappointed but Obama stressed that the US-UK strong “special relationship” will endure. In China, some would say that Brexit will draw UK closer to China creating a ‘booming’ mutual relations; new cooperation opportunities in various sectors, especially military, infrastructure and high-tech, will spring up in the post-Brexit period which will boost UK’s trade with China already being the number two among EU members. Without pressure from EU member countries, the UK-China free trade agreement (FTA) may enter into high gear. Overall, the Chinese public (so is American public) has not shown a strong interest on Brexit as can be seen on Sina Weibo (similar to Twitter in China), the hashtag of “Brexit” garnered 2.3 million views and 631 comments (6-18-2016 data) in comparison with 260 million views and 110,000 comments under the hashtag of “the US election” at the same time.
 
The impact of Brexit on EU, however, can never be overstated.  There was no hiding the concern in the EU media as well as behind the scenes as the Brexit shockwaves rippled through the EU.  The European Union was created on November 1, 1993 as a political and economic union between European countries. Prior to Brexit, EU has 28 member countries, being a body that has been vital to American foreign policy initiatives over the past two decades. The impact of Brexit on UK is perhaps best summarized by the former British Ambassador to the U.S., Sir Peter Westmacott: “Britain would be less influential in the world, in EU, in NATO and the Security Council and a less significant ally for the U.S. and others. The U.K. has to paddle harder to get a place at the table.” Whereas the impact of Brexit on everyone else in the long run may be netted out as ‘Everyone will get used to the Brexit and everyone must face the changes and reality dealing with nationalism versus globalism’.





2 Comments
RUBY TSAO link
3/16/2017 09:15:44 am

I like how Dr. Wordman gives a broad view and background information in his articles. He writes in English to promote understanding of China by English language readers.

Reply
RUBY TSAO link
3/21/2017 08:41:55 am

This is a good analysis of Brexit effects. Repetition of statements need to be cleaned up to present a more forceful point.

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