Pros and Cons of Brexit: Impact on Trade, FDI, Immigration, and Regulation

Impact of Brexit 1
PROS AND CONS OF BREXIT
Name
Institution
Course
Tutor
City/State
Date

Impact of Brexit 2
Pros and Cons of Brexit
The Brexit Referendum occurred in June 2016 and opened the window for the United
Kingdom to quit European Union amid criticisms and extolments. There are two different
views that projects how Brexit will affect trade statics: “soft Brexit Scenario” and “hard
Brexit scenario” (Reneen 2016, p367). The former, also known as the optimistic view,
focuses on the positive effects of Brexit to the UK economy, while the later, is a pessimistic
view, and emphasizes the negative impacts of Brexit. Soft Brexit scenario holds that Brexit
will be beneficial to the United Kingdom’s economy because it will increase Great Britain’s
access to the non-EU market but still maintain its EU market. In addition, Brexit will increase
the level of employment for British-born citizens and reduce the level of immigration. On the
other, hard Brexit scenario, argue that it will be detrimental to UK’s economy: Brexit will
lead to a reduction in foreign direct investment (FDI), increase trade cost, and cripple
industries that depend on low-income labour. This paper dissects the positive and the
negative impacts of Brexit with more emphasis on trade, regulation, supply of labour, FDI,
and immigration.
The first impact of Brexit to the economy of UK will be dramatic shift in trade balance
(Reneen, 2016). The soft Brexit scenario presumes that UK’s trade relationship with the EU
will be analogous to the Norwegian state of the economy and will present similar benefits
that the Norway has been enjoying. Norway is a member of European Economic Area (EEA)
and it has been enjoying free trade agreement with EU. To optimists, this means that there are
no trade barriers existing between the two. Norway a member of European Single Market and
it formulated regulations and policies that aim at reducing nontariff trade barriers within the
European Single Market. Norway is, however, not a signatory to European Union’s Customs
Union, which means that, unlike EU members, it has to contend with some of the nontariff

Impact of Brexit 3
barriers. Examples of such nontrade barriers are antidumping regulations and rule-of-origin
policy (Reneen, 2016).
The soft Brexit scenario is optimistic that, like Norway, UK and EU will still have strong
trade ties in as much as the European Single Market is still intact, and as such, Brexit will
have no impact on the trade barriers. The soft Brexit scenario also posits that the 25 percent
reducible nontariff barrier trade between the UK and the EU is the same to the one imposed
on the trade between the USA and the EU and therefore there is no cause for alarm.
Furthermore, optimistic scenario predicts that 10 years after Brexit, the EU intra-trade cost
will decline by 20% faster than the trade with the rest of the world. This implies that a decade
later, the nontariff trade barriers within EU will contract to 5.7%. The UK has been
contributing 0.53% of its national income to the EU budget. Therefore, Brexit will means a
reduction in contribution towards the EU budget. According to the optimistic scenario, there
is 1.28% decline in income due to adjustments in current and future nontrade barriers.
Bearing that UK is the major exporter in the European Union, the nontariff trade barriers will
increase national income tremendously. Proponents of Brexit also argue that since the UK
will no longer be adhering to the EU ‘common external tariff’ levied on imports, it can
benefit by removing all the import tariffs to lower the cost of imports (Reneen, 2016). There
is argument that Brexit will weaken the Pound, hence encouraging more exports.
On the other hand, the hard Brexit scenario presumes that World Trade Organization (WTO)
regulations will govern the trade between the UK and the EU (Dixon and Jo, 2017). To
pessimists, this will result to escalating trade costs bearing that “most-favoured-nation tariff”
is more likely to be imposed on the trade between the UK and the EU. More importantly,
WTO will not make take adequate measures to reduce nontariff barriers compared to the EU.
Reenen (2016) states that Brexit will spawn into three trade costs: the first cost is increased