Brexit and its Impact on Globalization

The assignment delves into the multifaceted impact of Brexit on globalization, particularly focusing on international trade and investment. It encourages students to analyze various viewpoints and consider key policy implications arising from this significant political event.

Running head: THE CHANGING BUSINESS ENVIRONMENT
Changing Business Environment
Name of the Student
Name of the University
Author Note

1THE CHANGING BUSINESS ENVIRONMENT
Introduction
Lee (2017) stated that globalization is a process that resembles ease in business and
communication among diverse nations. Businesspeople opt for globalization for developing the
opportunity in trading; attain ease in outsourcing and procurement and for economic
enhancement. Organizations desires to promote their brand and merchandise in other nation get
encouraged if globalization is valued. Elliott (2017) also highlighted one advantageous aspect of
globalization that is the higher the international trade among different counties, the greater will
be the GDP of the world’s Economy. This impact can be witnessed through the growth in World
GDP and global trade from the year 1980 to 2016 (Chandran, 2017).
Image 1: Growth in World GDP and Global Trade
(Source: Chandran, 2017)
Elliott (2017) also depicted that countries that are the part of a union face less challenges
in adopting the procedure of globalization and trading procedures. European Unions are one of

2THE CHANGING BUSINESS ENVIRONMENT
such examples where all the member nations were prospering with high benefits. However,
United Kingdom opted for has voted to LEAVE the EU for their further development self-
dependency in business and trade but the assumption of increasing globalization and trade has
been called into question. This essay thus aims to explain the reasons for the above mentioned
aspects along with the implications.
Discussion
The United Kingdome was not a member country of European Communities till 1973
(Goodman, 2017). The concerned nation had joined the community through a referendum in
1975 but after four decades, in the leadership of Donald Trump, the nation again demands for
leaving the European Union (BBC News, 2017). 51.89% of voters voted for leaving the
European Union; whereas, only 48.11% desired to remain a member of the European Union
(BBC News, 2017). The prime reason for quitting the EU was many British think that European
Union is not able to serve the purpose of maintaining financial balance and trade among its
members nation. Goodman (2017) stated that people also believe that can take control away from
individual nations without any prior communication that can affect their economy to a great
extent. In addition to that people of Britain also believed that UK's relationship with Europe was
never stable and thus people or voters who have witnessed the pre-Brexit era support this belief.
According to BBC published article, 75% of the voters, who have voted for Bexit are above 65
years of age; while only 54% and 43% of the voters are 25-34 year olds and 18-24 year olds
respectively (BBC News, 2017).
In the year 2015 that is pre-brexit 44% of UK export was directed to EU Member States
(Dhingra et al., 2017). It is also stated that this is equivalent to the scenario that 53% of total

3THE CHANGING BUSINESS ENVIRONMENT
imports are formulated in EU regions (BBC News, 2017). Hine (2017) highlighted that this case
is vulnerable for those nation, who had a strong tie with UK for the trading aspect to European
Union and these nations got affected when the UK leaves the EU.
Trade cost will also expected to increase but Chandran (2017) stated that this cost will be
based on the relationship between the UK and the EU after Brexit. The major reason of the cost
of trade will be then decided by free trade agreement (FTA), customs formalities and VAT along
with the market access measures like quotas and tariffs. It is also expected that the extent of non-
tariff barriers (NTBs) also includes the financial aspects of health, safety and environment
standards. Businesspeople and economist also expected that business can expect new trading
regime from 2019. Thus, another arguments that can be stated from the prior observation is that
the increase in the price of the trade between the UK and other European Union nations
damaging the export and import aspect of the international trade. This affirms the major
argument of the essay statement that is the assumption of increasing globalization and trade has
been called into question after the post- Brexit. Different nations are affected differently; taken
for instance, 9% of the Belgian goods export’s destination was the United Kingdom. In terms its
size of economy, Belgium ranks fourth to export to the European Union. However after brexit,
their position gone down to the fifth rank and only 5% of the total imports from UK is going to
Belgium. Another example is for Germany, which is the largest trading nation according to the
volume. Hine (2017) stated that the affected industry from the Brexit are- electronic equipment
manufacturers, automobile industries and especially the food processing industries. Lee (2017)
argued furthermore that even the UK will be affected from post-Brexit world. 57.5% of the
automobile export is made by UK to the EU market. In addition to that, the services sectors are
most impacted post-Brexit. The service sector of UK is also expected to be affected more as 80%

4THE CHANGING BUSINESS ENVIRONMENT
of the services sector in UK provide financial and banking services to the EU nations and
community that after Brexit will be affected.
The transfer pricing may be impacted from Brexit as it influences the trade-based fiscal
regulation. The countries of EU have to pay tax for transporting products and services. In some
cases, the price of the products can be double taxed due to intercompany transactions (Warner,
2017). Hobolt (2016) stated that this system of double tax can be avoided through EU arbitration
convention which is a matter of question after the UK leaves the EU, as during that time UK will
no longer a party to EU fiscal legislation.
Akman et al. (2017) furthermore stated that the Brexit impacts the supply chain
management. Elliott (2017) depicted that companies intends to support globalization focuses on
decrease in the cost of sourcing and delivery. Moreover, these companies also values for higher
service levels and quality of the products and services. The articles published in CNBC provided
a statement that a huge part of the UK trade is associated with the global supply chain.
Moreover, the gross trade is associated with value added services and 41% of the value added in
exporting flow comes from European Union that is only 12% in number from the United States
(Chandran, 2017). It is also expected that after Post-Brexit, the EU have to balance their current
global supply chains. Adler-Nissen et al. (2017) highlighted a significant argument that is the last
two decades, EU has negotiated total of 36 Free Trade Agreements (FTA) with other 58 non-EU
countries. Elliott (2017) states that all these negotiation taken by EU are for the business and
trading benefits of the member nation but UK will not be able to benefit from these negotiations
once it leaves EU. However, even if UK alone desire to develop negotiation of business and
trading with all other nations, the process will be time consuming and expensive.

5THE CHANGING BUSINESS ENVIRONMENT
Economists also believed that there will be a macro-economic effect on trading
concerning post-Brexit. The research of Bureau for Economic Policy Analysis (CPB) found that
Brexit leads to diminish the bilateral trade between EU and the UK. This furthermore resulted in
reductions in GDP per capita as higher trading cost impact the efficiency of the resources
allocation. According to the research it is estimated that other 27 EU nation and the UK may face
up to 0.8% and 3.4% reduction in GDP respectively (Hobolt, 2016). It is also found that the
greater loss of GDP may have to be faced by Netherlands, Belgium and Ireland (Hobolt, 2016).
In terms of implications, some political approaches can be taken like avoid the Brexit
from EU nation. In this case, the EU nation can offer incentive so that the exit of Britain can be
discouraged. Even if this approach fails, the union may suggest the other member nations to
choose different benefits of EU membership (Cumming & Zahra, 2016). A mutual and
favourable FTA should be established so that no nation will be adversely impacted by the
political decisions. The business agreements and supply chain should be balanced effectively so
that adverse impact on globalization can be diminished.
Conclusion
It can be concluded that Britain desire to quit their membership from European Union.
The benefits that was predicted by the political leaders was following less regulation, ability ot
formulate new trading rules according to the convenience along with huge savings on European
Union contributions and ability to formulate skills-based migration policy. However,
disadvantages like higher trading costs; imbalance in existing supply chain frameworks, loss of
access to the single market, diminished GD of the two nations was neglected during the time.
51.89% of the British people voted in favor of Brexit in which the older people are maximum to

6THE CHANGING BUSINESS ENVIRONMENT
vote. They have compared the past situation with the present; however, overlook the future
requirement. The consequences of the Post-Brexit are uncertain outcome in the economy of
production sectors, loss of influence over the single market’s rules, lower rates of migration and
economic disruption impacts the saving of British government that they used to give to EU
during the membership. The government and authority members of the nation should take proper
implications like offer incentive to UK for not leaving the EU, formulation of new trading
agreement that will not affect the other participating nation.

7THE CHANGING BUSINESS ENVIRONMENT
Reference List
Adler-Nissen, R., Galpin, C., & Rosamond, B. (2017). Performing Brexit: How a post-Brexit
world is imagined outside the United Kingdom. The British Journal of Politics and
International Relations, 1369148117711092.
Akman, M. S., Berger, A., Dadush, U., Evenett, S., Johnson, L., Mendez-Parra, M., ... &
Schmucker, C. (2017). Key policy options for the G20 in 2017 to support an open and
inclusive trade and investment system.
BBC News. (2017). Eight reasons Leave won the UK's referendum on the EU - BBC News.
[online] Available at: http://www.bbc.com/news/uk-politics-eu-referendum-36574526
[Accessed 6 Sep. 2017].
Chandran, N. (2017). Is Brexit a vote against globalization?. [online] CNBC. Available at:
https://www.cnbc.com/2016/06/28/how-brexit-impacts-globalization.html [Accessed 6
Sep. 2017].
Cumming, D. J., & Zahra, S. A. (2016). International Business and Entrepreneurship
Implications of Brexit. British Journal of Management, 27(4), 687-692.
Dhingra, S., Ottaviano, G. I., Rappoport, V., Sampson, T., & Thomas, C. (2017). UK trade and
FDI: A post-Brexit perspective.
Elliott, L. (2017). Brexit is a rejection of globalisation. [online] The Guardian. Available at:
https://www.theguardian.com/business/2016/jun/26/brexit-is-the-rejection-of-
globalisation [Accessed 6 Sep. 2017].
Goodman, P. (2017). Turbulence and Uncertainty for the Market After ‘Brexit’. [online]
Nytimes.com. Available at:

8THE CHANGING BUSINESS ENVIRONMENT
https://www.nytimes.com/2016/06/25/business/international/brexit-financial-economic-
impact-leave.html?mcubz=1 [Accessed 6 Sep. 2017].
Hine, R. (2017). Sink or Swim? UK Trade Arrangements after Brexit. Bruges Political Research
Papers 57/2017.
Hobolt, S. B. (2016). The Brexit vote: a divided nation, a divided continent. Journal of European
Public Policy, 23(9), 1259-1277.
Lee, D. (2017). Will the 'Brexit' mark the end of the age of globalization?. [online] latimes.com.
Available at: http://www.latimes.com/business/la-fi-brexit-globalization-future-
20160624-snap-story.html [Accessed 6 Sep. 2017].
Warner, J. (2017). If this is the end of globalisation, what hope for UK trade post Brexit?.
[online] The Telegraph. Available at: http://www.telegraph.co.uk/business/2016/07/19/if-
this-is-the-end-of-globalisation-what-hope-for-uk-trade-post/ [Accessed 6 Sep. 2017].