What is the economic impact of Brexit on Asian economies?

This economics post explains and analyses the possible economic consequences of Brexit on Asian economies and was created through synthesising a few economics essays. 

On 23 June 2016, in a historical moment that will be a discussion topic that would stand the test of time, citizens of the United Kingdom (the UK) voted in a national referendum on their continued membership in the European Union (the EU), ultimately choosing to leave. 

This huge event is called “Brexit”. 

What is the economic impact of Brexit on Asian economies? 

Brexit has negatively impacted global financial markets, causing economic volatility and huge losses of trillions of dollars in equity value. 

Meanwhile, the UK pound has seen the largest drop by any major world currency in recent history, and its largest drop since 1985.

On the surface, the UK leaving the EU would not matter that much economically to Asia’s economies. 

Although the UK is prima facie the world’s fifth-largest economy (now that is not the case any more, apparently as an immediate economic impact of  Brexit, because it has been overtaken by France), the UK is not actually one of Asia’s biggest economic customers. 

Except for Cambodia, Vietnam, and Hong Kong, most exports from most economies in Asia to the UK are relatively small as a percentage of total economic output. 

For Singapore, a small and open economy located in Southeast Asia, the UK is a relatively small customer. Singapore’s exports to the UK totalled S$7 billion in 2015, out of S$530 billion in total exports. 

Quite simply put, in the immediate or short term, the economic impact has been rapid and direct so far. In the immediate term - it's the economic impact on markets and currencies that matter currently. 

But the real and longer term impact of a “Brexit” – for Asia and the rest of the world – is much bigger than just merely market or economic volatility. 

The real economic impact of Brexit would be more subtle than any immediate effect on trade or markets. 

It would represent an economic slowdown – and maybe the first steps of a economic reversal – of the globalisation that has defined markets in recent decades. 

There are many definitions of globalisation, but in this case, globalisation refers to the increasing integration and interdependence of the world’s economies arising from increased international trade and greater international mobility of factors of production like capital, labour, and enterprise across international borders. 

Asia has a lot to lose from this rollback of international trade or decline in economic globalisation. 

Many Asian countries rely heavily on international trade. 

For instance, Singapore’s international trade stands at 351 percent of its GDP, and it amounts to 439 percent of Hong Kong’s GDP. Growth in international trade has been slowing in recent years, and Brexit could slow trade and growth down further. 

For example, the UK takes fully three-quarters of Singapore's investments in the EU with big companies like Comfort DelGro and Frasers having an international presence in that country. The UK out of EU could lead to significant fall in Singapore's exports to the EU, and Singapore international businesses could suffer write-downs in economic value on their balance sheets.

If there is a rise in protectionist sentiment in the UK, this might spread to other countries as well. 

Protectionism refers to economic policies aimed at restricting international trade between countries, designed to protect domestic businesses and workers from international competition, while free international trade refers to the exchange of goods and services across international boundaries. 

Recently, other than just the UK government, many governments (and a famous US Presidential candidate from "across the pond") have been adopting or promoting protectionist measures in the belief that this would offset the impacts on their economies from international trade and globalisation.

China would likely have some major economic concerns. The EU is an even bigger destination for Chinese goods than the United States.

The EU is China’s largest trading partner, and as China enters an era of slower economic growth, the timing of the breakup of the European Union couldn’t be worse.

For China, the UK's decision to eventually extricate itself from the European Union’s common market will be a disappointing move. Chinese Premier Li Keqiang has taken a particular economic interest in the UK, reciprocated in recent years by Chancellor of the Exchequer George Osborne. Last fall, London became the first international financial hub to issue renminbi-denominated debt after Xi Jinping’s visit there. Brexit will be an economic setback for the ongoing internationalization of renminbi as London’s international relevance as a global financial hub is diminished as a result of Brexit. 

Brexit could also challenge some of the international trade deals focused on further opening the rest of the world to ASEAN economies. The Trans Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP), for example, are aimed at cutting international tariff barriers and promoting international trade with some of the world’s largest economies. 

Brexit could also mark an economic setback for China’s long-term economic goal of a free trade agreement with the EU. London had emerged as one of the most eager advocates for a China-EU FTA. 

With the UK now exiting the economic bloc, none of the other major EU states seem keen to ink an economic deal with Beijing. An FTA with the UK alone might be politically simpler to negotiate, but will not have nearly the same economic benefits for China. 

Remember that a Free Trade Area (FTA) refers to a trade bloc where more than two countries agree to engage in free trade with one another while maintaining members’ own individual levels of external barriers against non-member nations.

In the longer term, no one really knows what the economic impact will be - but it certainly will not be a walk in the park for UK or Asia, or Singapore, and only time will tell if Brexit really was a good economic decision ... 

or if the economic experts were right in saying that this was one of the worst economic decisions of all time. 

JC Economics Essays is an economics website which has a wide and useful range of economics resources and free lesson materials for students' own use, such as economics essays at the A level standard (H1, H2, H3, and A level standards), and undergraduate and masters economics essays. The main focus is on A level economics essays, but GCE, GCSE, AS, AO, and H1/2/3 economics essays are in this site too. In particular, JC Economics Essays has model A level economics essays and responses that students could use as an easy and relevant reference for learning, as well as relevant tips and techniques for writing strong and well-argued essays. A whole range of useful case study tips, essay writing techniques, and relevant opinion pieces on a relevant range of economic topics will help you learn economics effectively. Thank you for reading, and cheers.

What is the economic impact of Brexit — what happens now that Britain has voted to leave the European Union (EU)?

This economics post discusses how economic growth, trade, immigration, international politics, and more would be affected by a split with the EU - today's historical Brexit

The immediate economic impact of today’s historical event was that Britain’s exit from the European Union shocked global economic assets and financial markets and unleashed massive economic uncertainty.

First, the pound plunged to its lowest level since 1985.

Second, investors fled risky economic assets and turned to the dollar and the yen, sending them soaring.

Third, the Bank of England earmarked £250 billion, about US$344 billion, for potential stability measures, which definitely means that the economic experts expect some turmoil in the near future.

Of most immediate economic consequence, Britain’s vote to leave Europe sent global markets on a wild descent. 

Investors gasped at this major damage to the global economic landscape and decided it looked dangerous and uncertain, and that they preferred to pull their money out of riskier places, and place their money in safe havens, for example Japan which saw the soaring of the yen today (24 Jun, Singapore time).

However, it has to be said that few economists expect that Britain’s departure from Europe will set off a full global financial crisis like the particular economic disaster seen soon after the collapse of the investment banking giant Lehman Brothers in 2008. 

Yet, it should also be said that at the time, that situation was not seen as a major economic blow to the world, and it turned out that the economic situation worsened rather terribly later leading to the global financial crisis.

Economic growth or lack thereof?

Nonetheless, most economists think that leaving the bloc would slow the UK’s economic growth. In a detailed assessment, professor Nick Crafts estimated that the EU directly raised UK’s economic prosperity by about 10 per cent, mainly due to increased economic competition and better access to the single European economic market. 

Many economic questions now linger: what would a new Ministry of trade have to do after the UK broke off with the EU to replace current trade networks and economic relationships? Sign a trade deal with the remaining 27 members of the EU each? 

Should the UK now come to an arrangement with about 50 additional countries with which the EU has preferential deals, or all the remaining 161 members of the World Trade Organisation (WTO)?

Apparently, the Leave campaigners started their campaign suggesting that the UK could maintain access to the European single market, they now think the UK could still trade with the EU under WTO rules and eventually strike a bilateral deal with the trade bloc, and yet not be a part of the EU’s custom union. Such an accord is likely to take years to negotiate, say experienced economic negotiators.

Economic impact of migration? Immigration as an issue?

Britain’s net migration stood at 333,000 in 2015, the second highest figure on record and more than PM David Cameron’s pledge to bring the figure down to the tens of thousands.

It has to be said that net immigration from EU countries, particularly central and eastern European member states, rose rapidly after their accession to the EU and recently when citizens of Bulgaria and Romania also acquired the economic right to work and settle in the UK.

Only by leaving the EU can the government reduce the numbers of EU migrants. That would be fair to say. 

However, the issue is that even if EU net migration was cut to zero, Britain would have far more migrants from non-EU countries than the prime minister’s tens of thousands pledge. Globalisation is by far the bigger issue. 

As long as Britain’s economy is doing well internationally, it attracts immigrants. But now that Britain has left, its economic growth may slow or even fall, thus leading to a decrease in migration - in that particular sense!

What does the future bring? No one knows?

Brexit hurts economically speaking.

The main groups of economists who have published economic studies in the campaign use different economic models and different datasets but speak with unanimity on this subject.

There are many negative economic results: the UK erecting trade barriers with the EU would hit economic prosperity very badly, which is not easily replaced by greater economic free trade elsewhere in the world. Leaving the economic bloc would afford the UK little additional regulatory freedom and there could be negative long-term economic consequences from the short-term upheaval of Brexit. 

On balance, experts and economists overwhelmingly think leaving the EU is bad for the UK economy.

One final point – on that 350 million pounds claim…

However, in the final analysis, no one really knows what happens now. The collective imagination leads to dark places.

In particular, as a final note on this sad day, one major piece of news that is making the rounds is the fact that some of the Leave camp's economic claims turned out to be not true. One major example is:

“The EU now costs the UK over £350 million every week – nearly £20 billion a year”

- by the Vote Leave campaigners

Well, yes it turns out that EU membership does come at a cost. Sure it does! 

Nothing is free in the world; there is no free lunch. 

Yes, the UK pays more into the EU budget than it gets back, but it turns out that the UK does not pay £350 million a week. In fact, the UK’s discount, or rebate, reduces what the UK should pay. Some of the so-called given away money came back in EU payments funnelled through the government, so the government’s ‘net contribution’ was around £8.5 billion, or £160 million a week. The EU also spends money directly in the UK (many economic articles show where EU grants go, especially to some poorer cities in the UK) – well, since this is an academic article, especially in grants to British researchers, for instance.

Therefore, it turns out that one of the major claims by the Leave camp was fradulent, fake, false, inaccurate. 

Maybe Brexit is a mistake. Only time will tell.

JC Economics Essays – Today’s post is a special news report on a historical economic issue. It is a huge and momentous event in the world’s economic history. 

Special thanks to FT, ST, HP, and SS for synthesising this news report on Brexit and its economic impact. 

JC Economics Essays is an economics website has a wide range of economics resources, such as economics essays at the A level standard (H1, H2, H3, and A level standards), and undergraduate and masters economics essays. In particular, JC Economics Essays has model A level economics essays and responses that students could use as a reference for learning, as well as tips and techniques for writing strong and well-argued essays. Thank you for reading, and cheers.