Impact of Brexit and US Protectionism on Global Business

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Name:
Student ID Number:
Module Title and Code: Current Issues in International
Business and Management - NBS8142
Assessment Title: Essay (Critical Analysis of Current Issues
in International Business and Management)
Date of Submission:
Word Count: 2200

Contents
Introduction......................................................................................................1
Rationale...........................................................................................................2
The BREXIT........................................................................................................3
The US Trade Reforms/ Protectionist Approach...............................................8
Conclusion...................................................................................................... 10
Reference List.................................................................................................12

Introduction
The essay focuses on the identification and the analysis of two current global
issues that are expected to influence the global business environment. The
two issues being considered are the BREXIT and the isolationism practices
being employed by the US. The protectionism or isolationism practices
employed by the US are focused on protecting its domestic businesses by
opting out from the international Trade deals and incorporating trade
restrictions on imports (Tanoos, 2017). The BREXIT is the abbreviation given
to the proposed withdrawal of Britain from the European Union by 31
October 2019. This withdrawal is a result of a referendum conducted on 23
June 2016 in the UK that favoured the withdrawal by 51.9% votes (Cumming
and Zahra, 2016). These two issues are expected to affect the global business
environment due to the economic strength of the UK and US and their
involvement levels in the global business environment. Both countries are
developed economies that have a strong influence on the global business and
trade environment (Sanger and Perlez, 2017).
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Rationale
The European Union is one of the major International Coalition of countries
in terms of trade. The importance of European Union in global trade can be
understood by its stature of being world’s largest in terms of exporting
manufactured goods and services and a major import market that’s biggest
for over 80 countries. The European Union and its members are responsible
for 16% of the total global export and import (Lightfoot et al., 2017). The
European economy is on par with large economies like China and the US. The
UK is the second biggest contributor to the European Union finances and
plays a major role in terms of policy and trade decisions of the EU. The
withdrawal of UK will enhance the financial burden of other member
countries and while reinstatement of border and trade control will result in
result in economic losses to both the UK and EU. Also, many global
businesses situated at the UK due to easy access to EU and favourable UK
work Environment will have to consider moving their primary operation to
other EU countries to continue their benefit of free trade from the EU
(Lightfoot et al., 2017). The movement of these global business giants like
TATA Motors will lead to a major shift in business and economic power. The
BREXIT may be the start of the withdrawal of other European countries from
the EU following the example of Britain (Lightfoot et al., 2017).
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The consideration of US’s isolationist and protectionist policies and practices
along with its withdrawal from a number of trade agreements will have a
profound effect on the global business environment (Sanger and Perlez,
2017)t. The US is considered to generate over 20% of the world’s income. It
has the largest manufacturing of goods that amounts to the production of
over 18% of the world’s production. It has the biggest economy in the world,
its exports amount to over £1.24 trillion, and imports amount to over £1.86
trillion. The US is a part of 14 international trade agreements that include 20
countries. Due to such a strong presence in the global business environment,
any major change or shift in US trade policy will influence the Global Business
environment (Hamilton and Webster, 2018).
The BREXIT
The UK is scheduled to exit from the European Union by 31 October 2019 but
till now no formal exit agreements have been formulated. This leaves the
post BREXIT implications a matter of speculation. One thing is clear that the
manner of British exit will dictate the outcomes for Britain as well as for the
Global Businesses (Sampson, 2017). The results of BREXIT on the British
Economy are expected to be negative in terms of trade, GDP, role in
international trade etc. The European Union is the biggest exporter to the UK
and the biggest importer of British goods. The 58% of the total exports by
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Britain goes to the EU countries while the 53% of British imports are from the
EU countries due to the free trade policies for the EU member countries
(Sampson, 2017). The exit of Britain from the European Union will adversely
affect the British Export and Import in the absence of a trade policy that can
compensate for the absence of the benefits of being an EU member country.
A hard BREXIT that will involve the British Exit from the EU without any trade
or other agreement seems to be a strong possibility due to domestic political
issues in the UK (Doh, 2017). Such a scenario could be highly damaging to the
world economy and trade, it needs to be considered that the 2008 debacle of
the Lehman Brothers was about to almost ruin the world banking system and
the 2017 Greece debt debacle became a major threat to the EU. In contrast
to these debacles, the economic meltdown of the fifth largest global
economy (refer the below picture) that will be a real possibility of Hard
BREXIT will have much more profound impact on the global trade and
economy (Doh, 2017).
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Source: Largest Economies of the World
The UK exports £88 billion worth of goods and £74 billion worth of services
while it imports £130 billion worth of goods and £46 billion worth of services
(ONS, 2019). This makes it a major player/ influence in the global trade
landscape. The number of Countries that have trade agreements with the UK
is around 90. Also, a strong domestic currency that’s GBP, a stable economy,
and supporting legislative environment for international trade has made the
UK a preferred investment destination making it the second largest in terms
of foreign investment (Sampson, 2017). The UK accounts for nearly 30% of
foreign investments directed to the European Union. The foreign
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manufacturers based in the UK contribute to over 40% of the total UK
exports. The foreign businesses that are global in nature have major
investments in the UK (Sampson, 2017).
The withdrawal of Britain from the European Union will also severely affect
these foreign or global businesses operating out of UK especially the ones
that have established their presence in the UK as a means of exploiting the
free access to EU trade (Hamilton and Webster, 2018). An example of such a
multinational company can be the Indian multinational company TATA
Group. TATA group has 19 different organisations working from over 40
locations within the UK (Grinsteins, 2018). It’s considered one of the biggest
manufacturer and employer in the UK. Almost half of its revenue from the UK
operations comes from Europe and the future of its UK operations is
dependent upon the trade deal between the UK and the EU. The company
has sustained losses due to the continued uncertainty about the outcome of
trade negotiations between the UK and the EU and the muddled political
climate of the UK that’s strongly affecting the outcome of the BREXIT trade
deal (Boddewyn and Rottig, 2017). All these factors do not take into
consideration the UK investment across the globe.
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Source: Potential of People Seeking Referendum on EU and Voting "OUT"
Another impact of BREXIT could be considered as the potential of its
repetition in other European countries that are a member of the EU. The
potential of such an outcome can be seen in the above diagram. The strong
presence of UK in the global trade scenario ensures that the negative aspects
of the BREXIT felt by both UK and the EU will affect the international trade for
a long time (Ghemawat, 2016).
7

The US Trade Reforms/ Protectionist Approach
The US approach towards free trade and international business changed with
the change in its leader in 2017 (Hamilton and Webster, 2018). Since 2017,
US’s approach towards trade has been isolationist and protectionist with a
focus on protecting domestic businesses and bilateral trade agreements. It
seems that the US is moving back to its protectionist policies of the past
which were in effect till 1945. The new trade approach of US came into play
when it pulled back from the Trans-Pacific Partnership, a proposed trade
agreement between the 12 countries located at the rim of the Pacific Ocean
(Tanoos, 2017). The trade agreement was later finalised by the rest 11
countries and came into effect as the Comprehensive and Progressive
Agreement for Trans-Pacific Partnership in December 2018.
The US also imposed trade restrictions and tariffs to safeguard the interests
of its domestic businesses which is contrary to the principles of International
trade a concept that was advocated, promoted, and endorsed by the US in
past. The trade restrictions enforced by the US has created a fertile ground
for trade wars (Hamilton and Webster, 2018). The target countries of these
trade restrictions such as China, that in itself is an economic superpower, can
reply in kind and initiate a trade war across the globe. The strength of the
presence of the US in the international business landscape ensures that its
actions have far-reaching consequences. These trade wars would be
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extremely damaging to countries that are smaller in terms of economy and
capital strength such as Mexico and Canada (Shuman, 2013). The
international and domestic businesses of such countries will suffer a major
setback. Multinational companies that have operations in the countries
engaged in the trade wars will be another causality of these Trade wars.
These multinational may suffer due to the censorship and restrictions
endorsed by the warring nations (Swanson, 2018).
In addition to initiating the trade wars, another possible outcome of the
protectionist approach of the US could be the formation of regional or trade
agreements between groups of countries or two or three countries such as
the trade agreements being pursued by the US with Japan and China or the
trade agreement between Japan and the EU, or the trade agreement being
pursued by China with the EU (Swanson, 2018). These trade agreements have
the potential to distort the international business landscape and division of
the global business environment into trade regions competing with each
other. Another avenue of such actions is the loss of trust in the international
trading agreements and the countries involved in them (Tanoos, 2017). When
a country like the US withdraws from an international trade agreement or
threatens to withdraw from an international trade agreement, it damages
the sanctity, legality, strength, and the longevity of the agreement. The
international trade organisations like the World Trade Organisation or WTO
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are also affected by such scenarios due to their inability to enforcing their
guidelines or promoting their suggested trade arrangements (Shuman, 2013).
Conclusion
The issues like the BREXIT and the change in the trade approach by a country
like the US seems to be localised incidents and their impacts are expected to
be limited to their respective regions. Post Globalisation, the global nature of
business operations and economic interconnectivity as well as the
interdependence of countries has increased exponentially (Boddewyn and
Rottig, 2017). This was indicated by the collapse of Lehman Brother of US in
2008 and its drastic impact on world banking as well as in the global
economic recession. The situation becomes direr due to the economic
stature of the countries involved and the European Union. These represent a
big portion of the world economy and the international business share. Any
problems experienced by them have the potential to disrupt the international
business landscape. The scale of the negative impact of the BREXIT depends
upon the manner of British withdrawal from the European Union (Boddewyn
and Rottig, 2017). If the EU and the UK are able to furnish trade agreements
that limit the potential damage of the BREXIT on the UK and the EU then it
will be business as usual. On the other hand, if the UK and EU fail in their
endeavour of reaching an agreement and the UK is forced to exit the EU
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