MD4099: Brexit's Impact on UK and Central American Trade

This report examines the multifaceted impact of Brexit on the United Kingdom and Central America, delving into the implications for trade, foreign direct investment (FDI), and overall economic strategies. It explores the effects on consumers, businesses, and fiscal policies, including trade depreciation and GDP changes. The report analyzes the trade agreement terms between the UK and Central America, highlighting how each economy benefits from the arrangement. It also assesses the roles of both regions within the global economy, considering their GDP contributions, major exports and imports, and FDI trends. Furthermore, the analysis incorporates economic trade theories such as the Heckscher-Ohlin theory and provides a multinational corporation (MNC) example to illustrate the practical consequences of Brexit. Finally, the report critiques the effects of globalization and concludes with a comprehensive overview of the challenges and opportunities arising from Brexit in this specific context.

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International strategic management
[Type the document subtitle]
3/23/2020
student name

International strategic management 1
Contents
Introduction................................................................................................................................2
Brexit effect on UK and Central America..................................................................................3
Trade agreement terms and how benefit to each economy........................................................4
Countries roles in world economy.............................................................................................5
FDI trends and foreign value added activities............................................................................7
Economic trade theory...............................................................................................................8
MNC example............................................................................................................................9
Globalisation critique...............................................................................................................10
Conclusion................................................................................................................................10
References................................................................................................................................11

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Introduction
Brexit is a withdrawal of British from your opinions which eventually known as Britain’s exit
or Brexit. The split of European Union and British has impacted the whole world and it was
shocking withdrawal across the globe. Therefore, stopping being a member of EU on 31
January 2020 refers to Brexit which was a good due to public “which was a commonly called
as referendum. With 17.4 million individuals agreed to Brexit which reflect 52% of the
population. However, this exit has reflected another side to the decision that is what will be
European Union and British future relations. Considering this to be deciding UK continues to
adopt rules and regulations and trading relations of European Union (expatica, 2020).
Brexit uncertainty has cost various impacts on foreign direct investment and trade at initial
stages. The simulation of neoclassical growth model has in multi country that includes MNCs
that were investing abroad and home subsidiaries. The analysis reflects that post Brexit
situations have reflected tighter restrictions when it comes to trade and foreign direct
investment from other European unions by United Kingdom is. United Kingdom organisation
has to increase investment in various intangible resources and research and development
which increase the cost for the companies and lower down the welfare for citizens of UK
(bbc, 2020).
Other than United Kingdom is the impact of Brexit would also be considered to study for
Central America through this report.

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Brexit effect on UK and Central America
The effect of Brexit on UK and Central America can be considered on the basis of
implication for consumers and businesses, fiscal policies, trade depreciation and GDP.
The consequences for United Kingdom and Central America include:
Considering business and consumers of nation, the economy of this nation has slowed down
after Brexit as various businesses have shifted their headquarters to European Union from
United Kingdom. Moreover since the subsidies and agreement between the two nations have
with drawl, the benefits are also decreased for all the companies working In UK and Central
America which reflect the implications for increase in price for the products for consumers as
the production price increases for businesses (nbe, 2020).
Considering Trade, the major implications of Brexit includes elimination of terror free trade
among Central America that is EU member and Britain. This reflects increase in cost of
exports that has majorly impacted negatively on United Kingdom exporters and the products
have found to be become expensive in Central America as well. Other than this the higher
import prices for both the countries have decrease the standard of living for the residents of
both the countries and create inflation in United Kingdom (ukandeu, 2020).
Considering the fiscal policy or exchange rate that has been impacted due to Brexit includes
lower currency exchange rate which has eventually affected devaluation of pound. The
statistics reflect that the pound sterling foreign exchange to euro has lowered down to 15% as
compare to pre-referendum level (expatica, 2020).
Considering GDP, Brexit it has impacted the uncertain slowdown of growth of United
Kingdom to 1.5% in 2018 from 2.4% in 2015 (lse.ac, 2020).

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Trade agreement terms and how benefit to each economy
There has been a continued the agreement between Central America and UK. The countries
government have signed political and trade continue tea agreement. The trade between
Central America and UK was around €1 billion it’s 2018. Moreover the agreement has make
sure that the consumer and business of British are benefited from continuation of regional
benfits after leaving European Union, That is providing tariff free trading along with the
liberalisation of food production and agricultural trade and fisheries product. Both the
countries are benefited from this as UK consumers are able to purchase lower price on
imported goods from Central America like Costa Rican fruit. On the other hand, Central
American presidents were able to benefit from cars and drink production in UK at lower
tariffs. Other than this this agreement will also helpful in strengthening the trade relations
between Central America and UK. Other than this new agreement has also come up among
these two nations that is Foreign Secretary Jeremy Hunt. It can be said through this analysis
that Central America is more benefit among the two nations as it is associated with European
Union as well as in agreement with UK which reflect maximum benefit to the nation
(edition.cnn, 2020).
From previous trade with you, United Kingdom has been a lot more beneficial and
advantages from European Union, which cannot be a complaint through Central American
trade. However there are various advantages for UK to enter into Central American
agreement which is not as adequate and cannot compensate for the loss of United union
benefits (assets.publishing.service.gov.uk, 2019). However there are some drawbacks from
this agreement, the custom provisions were considered from European Union Central
America agreement which were replicated along with some minor changes. However
considering mutual administrative assistance, which was not considered into UK Central
America agreement which was one of the major drawbacks. Moreover sustainability was one

International strategic management 5
of the major issues through this Trade. Moreover technical barriers to trade war another
major issue which is related to movement of goods across national borders in UK Central
America agreement. They economic growth potential and are higher for both economies as
the trade will reflect lower tariffs, free trades and subsidies which will eventually help
importers and exporters to earn money and also benefit consumers which will eventually
reflect in economic growth (gov.uk, 2020).
Countries roles in world economy
Considering the contribution of United Kingdom and Central America in world economy; it
can be said that the United Kingdom is sixth largest economy across the globe. This reflects
$2.83 trillion nominal GDP. It has been contributing over 75% of its GDP in service sector.
However the GDP of UK does not contributed by agriculture at higher percentage. The
contribution of Central America in the economy is lower than that of United Kingdom but it
is considered to be 11th largest economy of late in America. Moreover the company has been
able to recover from the 2009 crisis with reaching 20 US$8 billion GDP in 2010.
Considering export and import products, the major export by Central America are with
agricultural products that this flowers, rice, coffee and cocoa. However the company is being
importing non-traditional products that include electronic, appliances and cars. United
Kingdom is a major export products are organic chemicals, scientific instruments, electrical
goods, refined oil, crude oil, aircraft, cars and mechanical power generators. Moreover major
import products include plastics, precious metals, vehicles, electrical machinery, furniture,
plastic articles (ies.co.uk, 2020).

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Figure 1: (Source: (sice.oas, 2020)
As per the statistics for investment in United Kingdom is at higher record that is more than
any other nation of €1.3 trillion (channel4, 2020). One of the major impact is due to UK and
Morocco continue trade agreement which reflect a trade between the nations which was
worth of €2.5 billion in 2018 (gov.uk, 2020).
As per the statistics of 2016 it has been identified that the trade deficit of €60 billion work on
United Kingdom while importing 30 €2 billion worth services and products from European
Union, whereas only 242 Euro billion worth products were exported by the Nation. Moreover
the trade deficit of UK increases with highest level in 2018 which has been impacting
negatively on economy of UK and credit conditions in the nations for business and household
has been tightening (ft, 2020)

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FDI trends and foreign value added activities
Figure 2: (Source: (commonslibrary.parliament.uk, 2020)
Foreign direct investment inflow and outflow among United Kingdom in Central America
reflect various statistics. United Kingdom companies have inverter foreign direct investment
while linking to European Union. For instance the employment levels of Central America
companies that are investing in United Kingdom’s were quite similar. UK company is
considering the outflow direct investment in the nations of United union reflect employment
of 242 employs in Central America. The employment figure for outward or trade were 0.9
million employs when compare to 0.8 million in case of invert foreign direct investment in
business. Central America was found to be The only continent that has outward FDI
employment companies of 0.2 million which was lower than that of invert FDI employment
for companies that was 0.3 million. Moreover the statistics reflect that Central America has
accounted for €70.2 billion in foreign direct investment recipient commercial
(commonslibrary.parliament.uk, 2020).

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We just transfer the company is considering globalisation and Competition where Central
America FDI reflected good governance and very effective legal system. However some of
the weakness for Central America included infrastructure shortcomings especially when it
comes to ports, airports and roads. Considering the list of countries ranked on the basis of
foreign direct investment, United Kingdom was ranked at third position with the value of
€1.6 trillion. On the other hand countries of Central America are found to be at 67th rank
considering foreign investment for example Costa Rica.
The statistics reflect that bilateral asymmetry has been identified for United Kingdom is in
foreign direct investment. Reason for this is different values in the nation FDI for some of the
organisation and when compared to counterpart country. OLI paradigm framework can be
applied while analysing the local advantage in for nation, if some products are not available
information it is approachable to export the product or this may be transferable from taking
advantage from international rising production and directly investing in the nation
(ons.gov.uk, 2020).
Economic trade theory
The comparative advantage factors for Central America have identified. The trading goods
between two nations reflect Costa Rica to be 99th largest trading partner of United Kingdom
where the trade in goods reflect €1 billion in 2018 among the two nations. The total trade of
UK export to Central America include €0.3 billion and import from Central America includes
€0.7 billion in 2018 which reflects imbalance in trade of goods.

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Figure 3: (Source: (sice.oas, 2020)
Heckscher Ohlin theory of international trade reflect the comparative advantage, which
reflect the way a country must operate and trade in international market. For instance the UK
is capital intensive nation, which reflect comparative advantage in investing through use of
capital and technology. On the contrary, Central America could use labour intensively to gain
comparative advantage.
MNC example
Automotive industry has been impacted majorly due to the agreement between Central
American United Kingdom. One of the major advantages of UK-based production auto
mobile companies are easy trade between Central America and the Central America is
benefited with lower tariff of cars imported in the country. For example UK purchases Suzuki
let automated distribution business in Costa Rica which reflected various benefit (reuters,
2020). Considering porters five forces model, the first force included bargaining power of
buyers, the bargaining power of buyers and Central America increases due to this agreement
as the tariffs will work and this agreement reflect lower prices of car to the consumers.
Bargaining power of suppliers, this force reflect companies were able to procure from
materials on lower cost and cash free dealing and trade relaxation among the countries which
decreases the bargaining power of suppliers in the industry. Threat of new entrants as the
agreement was done to threat of new entrant’s increases; however the industry nature reflects

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lower new entrants to industry. Industry rivalry, this is one of the major challenge what the
companies after the agreement as free trading and subsidise trading among the two nations
due to this agreement reflect increase in competition among the companies in the industry.
Globalisation critique
Globalisation has increased the opportunities for the companies to grow across globe;
however this comes with various challenges as well. The major challenges include trade
deficit, exploitation of tax havens, unfair working conditions for labour and economical
damage could be caused (Baker & Bowen, 2015). Large multinational organisations could
harm or exploit nations resources while avoid paying taxes.
Conclusion
Brexit is a withdrawal of British from your opinions which eventually known as Brexit. The
effect of Brexit on UK and Central America considered the consequences for United
Kingdom and Central America include Brexit it has impacted the uncertain slowdown of
growth of United Kingdom to 1.5% in 2018 from 2.4% in 2015. The trade between Central
America and UK has made sure that the consumer and business of British and Central
America are benefited from continuation of regional.

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References
assets.publishing.service.gov.uk, 2019. uk-central-america-trade-parliamentary-report.
[Online] Available at: https://assets.publishing.service.gov.uk/government/uploads/system/
uploads/attachment_data/file/823554/uk-central-america-trade-parliamentary-report.pdf.
Baker, H.K. & Bowen, H.P., 2015. Globalization and diversification strategy: A managerial
perspective. Scandinavian Journal of Management, 31(1), pp.25-39.
channel4, 2020. is-foreign-investment-in-the-uk-really-at-a-record-high. [Online] Available
at: https://www.channel4.com/news/factcheck/is-foreign-investment-in-the-uk-really-at-a-
record-high.
commonslibrary.parliament.uk, 2020. where-does-the-uk-rank-in-foreign-direct-investment-
statistics. [Online] Available at:
https://commonslibrary.parliament.uk/economy-business/where-does-the-uk-rank-in-foreign-
direct-investment-statistics/.
edition.cnn, 2020. us-uk-free-trade-deal-brexit. [Online] Available at:
https://edition.cnn.com/2020/03/02/business/us-uk-free-trade-deal-brexit/index.html.
expatica, 2020. brexit-and-its-strong-impact-on-currency-exchange-rates. [Online] Available
at: https://www.expatica.com/finance/banking/brexit-and-its-strong-impact-on-currency-
exchange-rates-811031/.
ft, 2020. UK trade deficit hits widest in eight years. [Online] Available at:
https://www.ft.com/content/ace751a2-fbd6-11e9-a354-36acbbb0d9b6.
gov.uk, 2020. uk-and-central-america-sign-continuity-agreement. [Online] Available at:
https://www.gov.uk/government/news/uk-and-central-america-sign-continuity-agreement.