Introduction
On June 23rd, 2016, the people of Britain made a decision, to exit the EU in a move termed as the BREXIT. The vote will, however, have severe repercussions to the nation and other countries for years to come. For instance, the BREXIT will affect the country’s International Trade Agreements by increasing the trading costs and will reduce UK’s FDI by 22%, hence damaging the country’s productivity and real income. This essay takes a look at the effects of the BREXIT on UK’s International Trade and the foreign investments in the country.
Brexit Effects on International Trade Agreements
For all the member states of the European Union, the EU negotiates trade deals with other non-member states on their behalf (Dhingra et al. 2016a). After exiting the Union, the UK will now become a free state and have the ability to form trade agreements with countries like China and the USA. Naturally, the EU is UK’s natural trading partner. After BREXIT, the UK will have to hire civil servants who will negotiate with other countries, on behalf of the nation (Dhingra et al. 2016a). As a result, the UK will incur more trading costs (Dhingra et al. 2016a).
Brexit Effects on Foreign Investments
Leaving the EU will have an adverse impact on the country’s Foreign Direct Investment, FDI. According to Dhingra et al. (2016b), UK’s FDI inflow will reduce by 22% after exiting the EU. These investment losses will cripple the country’s productivity and reduce the real incomes by 3.4% (Dhingra et al. 2016b, p. 30). Dhingra et al. (2016b) case studies prove that leaving the EU would reduce the goods and services outputs related to the Union, hence eroding the ability of the UK to bargain concessions resulting from the EU transactions. Even though the people of UK may be willing to incur these costs by through the BREXIT, as stated by Dhingra et al. (2016b, p. 30), they are not necessary costs.
Conclusion
In conclusion, the BREXIT will have effects on both the country’s International Trade Agreements and the Foreign Direct Exchange. The nations will have to incur more trade costs as it will need to hire more civil servants who will bargain on the country’s behalf. On the other hand, BREXIT will reduce the FDI inflow by 22%, crippling the nation’s productivity and reducing the real income of UK.