Figuring Out the UK's Post-Brexit Haircut

Just last week Theresa May, the Prime Minister of the United Kingdom (UK), announced that they would trigger Article 50 of the Lisbon Treaty on March 29, thereby initiating a two year period of negotiations for the U.K.’s exit from the European Union (EU). Signed in 2007, the Treaty of Lisbon is the most recent founding treaty of the EU. It consolidates constitutional power into one document by amending previous constitutional treaties such as the Maastricht Treaty and the Treaty of Rome. To give some background, Article 50 of the Lisbon Treaty is the constitutional grounds for which a country can remove themselves from the EU. In this respect, the UK will remain in the EU until 2019, depending on how long the negotiations take within the two-year period.

Exiting the EU is a lot like removing the gum your younger sibling has just flung into your hair.

As alluded to earlier, the UK ’s departure from the EU is a bit trickier than just triggering a piece of a treaty. In fact, exiting the EU is a lot like removing the gum your younger sibling has just flung into your hair. For starters, he had no clue how hard it would be to take out, or how long it would take to get out. He may first say, “Just rip it out!”—not understanding the principles of how gum works. Others may tell you to just cut it out and work with what you got. But, this is your hair, and you’d rather not look like you lost a fight with a weed-wacker. This gum-hair metaphor—that to some extent has gone on too long—illustrates the difficulties that the UK will face when leaving the EU. Instead of finding ways to remove gum, the UK must renegotiate different trade deals and treaties and begin to develop legislation to replace EU-based legislation. Will there be freedom of movement of people? Of goods? How does taxation now work? How does the UK replace EU subsidies on agriculture and aquaculture? How does the UK prevent the other 27 member states from becoming spiteful?

In preparation to leave the EU, the UK has taken a few steps to ensure that some aspects of the transition are smooth. First, the UK government established an entire department of the government to oversee the process. The Department for the Exiting the European Union (DEXEU) develops policy work to support the UK ’s position during negotiations, works with the devolved parliaments in Wales, Scotland and Northern Ireland, as well as supports the Prime minister in her negotiations. DEXEU also has tried to develop the best strategies for the UK post-Brexit. In addition to DEXEU, the UK’s Parliament has also established its own select committee titled The Exiting the European Union Committee.  This committee essentially holds the government—led by Theresa May and DEXEU—accountable for their actions. This committee also questions different groups, academics, experts, and politicians about how Brexit will affect them. Most recently, the committee held a hearing for Sadiq Khan, the Mayor of London, on London’s response to the government’s white paper on Brexit priorities. This has been a great concern for London, as London’s economy undoubtedly benefited from the freedom of movement of people. Furthermore, London is the economic and cultural epicenter of the UK and was a large portion of the Remain Camp during the Referendum. To some degree, the UK has done all it can in preparation for negotiations, as the negotiations are out of the full control of the UK

Unlike getting gum stuck in your hair, the silver lining may be more than a rad pixie cut. There are mixed feelings in the business world in regards to Brexit. Multinational corporations have begun to construct post-Brexit contingency plans. Bank of America has stated that it will move its European Office to Dublin. The fear of relocation of business was a large concern of those who wished to remain in the EU. In response to this concern, the UK looks to slash corporate taxes to incentivize business to stay. Furthermore, opponents of Brexit often cited the loss of the single EU market as catastrophic for the UK. However, there have been some positive effects of Brexit already. Notably, the pound fell by more than ten percent to $1.34 the day after Brexit. The pound saw flash crashes in both October and January where it traded under a $1.20. If you know something about weaker currencies, you may know that a weak pound is not necessarily a bad thing. While a weaker pound means that the pound does not go as far in international markets, it does mean that UK exports are cheaper to purchase than before, and also relative to other states’ exports. In addition, a lower exchange rate makes it cheaper for tourists to pay for their expenses, thereby increasing traffic to the UK

Tourism and cheaper exports may sound good. However, what if the UK has no export markets? The UK currently trades the most with the U.S., but the next three of its top trading partners are within the EU. Countries usually trade with countries that are close to them, yet the UK in some respects may be able to have its cake and eat it too. If the UK is unable to access the single market, it will have to look elsewhere or overhaul relations with its other big trading partners. Furthermore, the UK may be able to use the lowered exchange rate as leverage during negotiations, as UK exports are now more appealing. A paper published by London’s National Institute for Economic and Social Research found that shifting trading partners would not fully mitigate the effects posed by leaving the single market. However, the paper also cited that it was difficult to come to this conclusion as no state has left the single market. These are all things that the UK government will have to take into consideration after triggering Article 50.

If the past has taught us anything, it is that people are awful at predicting the future. In this respect, we have no certainty to determine what our post-Brexit haircut may look like. For all we know, the UK might be in a grunge phase.

Removing the gum from the UK’s hair will be difficult; the UK government will have to ensure that any of the negative effects incurred by Brexit are neutralized by the benefits of leaving. Leaving the EU will be a lengthy and difficult process; however, it will most likely not be the end of the UK as we know it. Like most things in politics and economics, there are multitudes of unknowns. People in general have failed to predict the results of Brexit, the U.S. presidential election, the market value of Snapchat, and even the weather—which is solely a natural phenomenon. If the past has taught us anything, it is that people are awful at predicting the future. In this respect, we have no certainty to determine what our post-Brexit haircut may look like. For all we know, the UK might be in a grunge phase.

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