Brexit in a Time of Globalization and Pandemic

by Chris Richardson

The start of 2021 heralded the departure of the United Kingdom (UK) from the European Union (EU), after half a century of membership. It was a process that was watched by the entire world, and one that even became defined by its own noun: Brexit. Of course, the UK is only one nation among the one hundred and ninety-five countries of today’s world. However the reasons behind Brexit strike a chord across the planet. For it was the global financial crisis of 2007 to 2009 that first caused Brexit to evolve beyond being just an extremist - essentially nationalist - notion on the fringes of the UK’s cultural and political landscape. It was the ongoing rise of populism within today’s febrile media environment that then led Brexit to actually happen. Thus it resonates from one end of Planet Earth to the other, as so many countries have been touched by these issues.

The biggest event to affect the entire world since the financial crisis, has been the COVID-19 pandemic. In an astonishing twist of timing, Brexit and the pandemic are taking place at the exact same time. This amplifies the repercussions of Brexit in every way - from the cultural and economic implications for the UK itself, to the rest of the world’s view of the UK moving forward. Over the past year, the blogs published here on the World Trade Resource site have attempted to look at the major topics that are impacting most of the world, most of the time. Those themes come hugely into play in the context of Brexit, and are relevant to my first quarterly blog of 2021.

The Brexit Back Story

It is useful to first look at why the EU exists at all. It was set up with nothing less than the noble aim of permanently ending the frequent conflicts that occurred between European neighbors. The culmination of these was the Second World War, which left over twenty million civilians dead. Therefore the premise of the EU is to promote integration in a historically volatile space. The reason being that countries with an economic dependence on each other are far less likely to go to war. Thus for the founding nations, creating the EU was also a guarantee that the horrific events of the Second World War could not happen again. For the countries of Eastern Europe - who joined the EU forty-six years later - membership offered a haven from Russian domination after decades in the Soviet sphere. For nations such as Greece and Spain, EU membership protected their transition from military rule to becoming stable Democracies. In Ireland’s case, EU membership secured its freedom from British influence once and for all. Which left Sweden and the UK as the only members (among twenty-eight countries) to have joined the EU for primarily economic reasons. While Sweden embraced a European future, many in the UK have preferred the glories of its imperial past over the real world of today.

To be fair, Britain’s imperial history did make it different from the twenty-seven other member nations. Its empire was larger and much of it more recently held on to than the former realms of - for instance - France and Spain. While just over one million UK citizens live in an EU country, for cultural and (primarily) linguistic reasons two-and-a-half times as many Britons live in such places such as Australia, Canada and the United States. This however could not and does not change the reality of the UK being geographically situated in Europe, which is a fact that is becoming more - not less - of an important issue in this era of globalization. Critically, the way in which the UK is leaving the EU does not leave the British in the same position as the three other major non-EU member economies of Europe (Norway, Switzerland and Turkey). Instead the British Government is pursuing a path that is akin to Canada amputating its economy from the United States. This has cultural, economic and political repercussions. For ironically, the era of globalization has made many traditional industries (such as car production) actually less global. Every continent now can look after itself in most of these sectors. Which leaves countries today more dependent - in terms of long distance trading - on whatever it is they can offer uniquely. Examples include Germany with its highly specialized engineering and Qatar as an energy provider. The post-Brexit economy - in an ever more competitive world - will surely be even more dominated by the financial services sector than it already is. Which may be why a recent poll in the UK put the number of Britons who now think the country should have remained in the EU at 48%, with 38% still being in favor of leaving (and the remaining 14% being undecided).

Brexit in Today’s Context

The EU is the biggest single exporter of manufactured goods and services on Earth, and is the biggest import market for over one hundred countries around the world. The UK - in now fully leaving the EU single market - is choosing to no longer participate in this auspicious entity. This despite it being Margaret Thatcher who persuaded the EU to take the important step of creating the single market in the 1980’s. Yet Iceland, Norway and Switzerland are all in the EU single market without being EU members. Similarly Turkey - as the world’s thirteenth largest economy in PPP* terms - participates in an agreement known as the European Union-Turkey Customs Union. By comparison, the UK is currently the world’s ninth largest economy in PPP terms.
(* PPP = purchasing power parity in 2020)

The eleventh-hour Brexit trade deal - agreed in December 2020 - leaves the UK with ongoing terms of trade with the EU that are worse than than it had before, and worse too than those of the non-member countries mentioned above. The nature of the UK’s departure from the bloc leaves it in the same trading position as the EU’s eastern neighbors of Russia and Ukraine.

The ramifications of this for the UK economy will take place at different speeds, depending on the industry sector involved. Automakers - including for instance Nissan - will struggle to qualify some of their UK-assembled models for export to the EU, as so many of the car components come into the UK from the EU (as part of what was once a seamless European production line). The auto industry in the UK employs over eight hundred thousand people (and accounts for 13% of the country’s exports). The British domestic market cannot compensate for lost overseas sales, just as the relatively small size of the Australian market caused the global auto-makers to cease production there. The new post-Brexit requirements of audits, certifications, components sourcing and customs declarations could lead international car companies to also leave the UK.

The financial services sector in the UK is much less vulnerable, what with it being one of the country’s few unique specialty industries and more globally agile in nature. The degree of market access to the EU that London’s financial firms will have, is yet to be decided upon. Commentators the world over expect it to be a case of damage but not disaster for “the City” (the UK’s financial district). Inevitably though, the “North-South Divide” - the UK’s economic disparity between the London region and anywhere further north - will now be exacerbated.

These issues are bound to lead to less Foreign Direct Investment in the UK, which has declined by 19% since the EU Membership Referendum in 2016. It is expected to have reached a 37% decline by the end of 2021. That is not to say that the UK is not a worthy place to invest - it has a stable legal system and an educated workforce - but the global dynamic has shifted. In the eyes of the world, the UK is simply not the same place any more. This is true even in the United States, where the Biden administration has already expressed a very unfavorable view of Brexit.

Brexit in the Eyes of the World

Brexit was always going to shake at the foundations of the UK economy. No country on Earth can remove itself from an economic ecosystem after half a century, and expect it to be painless. As fate would have it, the UK’s departure from the EU is taking place in the middle of the biggest pandemic that the world has seen in over one hundred years. For entirely political reasons the British Government nevertheless refused to delay the EU exit, in order to take into account the additional economic pressures that the pandemic was already causing in the UK.

In another twist of fate that can only be termed as cruel, a highly transmissible variant of the original COVID-19 virus came into being in the UK at the end of 2020. This new virus variation became known - the world over - as “The UK Variant” at literally the very moment that the UK left the EU. Television news reports across the globe were talking about the British variant of the disease, at the very time the UK should have been positioning itself for post-Brexit investment.

Previous World Trade Resource blogs have looked at the rise of the virtual workforce. This was accelerated, due to the pandemic causing employees to be required to work from home in every corner of the world. It has already led to a burgeoning era of “Digital Nomads”, now with various Governments offering visas to those who prefer to move around the world to work remotely in a country that is not their own. These phenomena can also be looked at in the context of Brexit.

Until January 1st 2021, visas were not required for EU nationals to live and work in the UK. This led London to become the “six largest city of France”, due to the number of French nationals that were living there. Brexit brings this to a halt, with a new immigration policy being rolled out by the British Government that gives no priority to EU nationals. As already mentioned, most enterprises were forced to dramatically - enormously - switch to virtual working practices due to the COVID-19 pandemic. Large European companies are therefore unlikely to want to take on new administrative challenges in sending an employee to the UK, when there is now much more likelihood that the employee can perform the required job function remotely without relocating.

Every professional person that now doesn’t move to (for instance) London, causes immediate damage to the local economic ecosystem. For that person is not there. That person is not eating in restaurants, using local services or even going to a London gym. The UK may well join such countries as Barbados and the United Arab Emirates, in offering a specific “Digital Nomad” visa to overcome this. Yet the grey skies - and its high cost of living - will cause the UK to struggle to compete, when being compared to the attractions and tropical attributes of a Caribbean island.

Tomorrow’s UK - Culture and Nationhood

Whatever the motives of the “Leave” voters in the UK, it is impossible to deny that the EU has delivered more than half a century of harmony to what was for centuries a militarily deadly and socially intolerant region. What makes this so remarkable, is that an array of cultures - even within member countries - has been involved in achieving this. The EU continues to evolve into an organization that spans such crucial policy areas as environment, justice and migration.

Whatever the economic ramifications that Brexit will bring to the UK, there will also be cultural and political consequences. The most immediate of which has been the departure of many of the EU nationals who were living there. This has been exacerbated by the pandemic, and has been most keenly felt in the UK’s National Health Service (NHS). It is believed that some twenty thousand young NHS staff - who had been working in hospitals all over the UK - have returned to their country of origin. This has occurred at the very time that those same hospitals are now being overwhelmed with COVID-19 patients. The more nuanced result of their departure will be the loss of exposure to other cultures and languages of those with whom the young EU workers interacted in their daily lives. The human tapestry of the UK will now become a whole lot plainer.

Indeed one of the intangible reasons for Brexit is the fact that so few people in the UK speak a second language fluently, unless they have come to live there from another country. Given that English has become the “go-to” language of the modern global economy, many among the British believe that everyone speaks - or should speak - English. What they are missing is a whole new level of engagement with others. Brexit is therefore likely to cause the British to turn ever more inward-looking, and will slowly but surely impoverish their cultural lives in ways that are as inconspicuous as they are real. In a faltering economy, this may well lead to extremism.

Populism and extremism make great bedfellows, and the Brexit referendum campaign of 2016 - without getting political in this article - was a masterclass in populist rhetoric. The British would prove to be especially susceptible to populism, due to the impact of the global financial crisis on the UK economy and the subsequent austerity policies of the British Government. Social media served as the perfect vehicle for the populist rhetoric of the Brexit referendum to become “fact”.

The rest - as they say - is history. Yet British history is still in the making. The Brexit referendum has jeopardized the very union of “home nations” that is the UK. Northern Ireland and Scotland voted to stay in the EU by majorities that cannot be ignored. A “hard” border between Northern Ireland and (EU member) the Republic of Ireland - and a return to the dark days of terrorism - has been avoided by the establishment of a trade border between Northern Ireland and the rest of the UK. This harmonization of Northern Ireland with the Republic of Ireland will without doubt see an increase in support for Irish unification. At the same time, opinion polls are consistently suggesting that - due to Brexit - a majority of Scots are now wanting independence from the UK.

Some observers did predict these potential domestic political ramifications for the UK, while the added impact of the pandemic could not have been known. Yet one thing is certain. Brexit will cast a bigger shadow over the UK than was previously imagined on either side of the argument.