Earlier this year, I wrote an article explaining Brexit. If you would like to read that article, click here.
The United Kingdom formally left the European Union on January 31, 2020. Currently, the UK is in a transition period where it still has to follow the EU rules. This transition period expires on December 31, 2020. The UK is scrambling to get a trade deal in place before this date; if they don’t, the UK will crash out of the EU without a trade deal.
The UK and EU have been struggling to negotiate a trade deal since January; however, some progress has been made after weeks of slow-moving talks. Fishing rights, competition rules, and how a deal would be enforced are the three main issues that still need to be negotiated. The UK and EU are also negotiating how closely the UK will have to follow EU standards after the transition.
If the UK and EU manage to strike up a trade deal, trade between the two will continue to be cheaper and easier because no taxes will have to be paid. However, if no trade deal is reached, there will be significant consequences. At this rate, likely, the UK and EU will not agree on a trade deal before December 31.
The EU is the UK’s largest trading partner; the trading relationship between the two is worth $900 million. In addition to that, the UK is already suffering its worst recession in 300 years; disagreeing on a trade deal could prolong this recession and make it even harder. In fact, economic destruction caused by a no-deal Brexit could be worse than the destruction caused by the pandemic. Unemployment is expected to rise dramatically. Businesses will also have to pay taxes on imports and exports, making UK goods harder to sell abroad, consequently increasing British shops’ prices for goods made in the EU.
Even if a trade deal is reached, there will still be a bad economic situation, with GDP expected to drop 11.3% this year. Also, the costs companies face would still be higher because of border checks and customs.
One industry that will be hit particularly hard if there is a no-deal Brexit is the motor industry. The British motor industry has already been hit very hard by the pandemic; the industry is the slowest it has been since 1995. A no-deal Brexit could lead to a £100 billion dent in the car industry over the next five years, damaging it even further. The motor industry is very interconnected between the UK and EU; parts cross many countries’ borders, so it is necessary to have a trade deal.
One of these negotiations’ most critical parts is the border between Northern and Southern Ireland and whether it will remain open or return back into a hard border. The return of a hard border would be a major consequence of a no-deal Brexit. A hard border between the two would lead to vandalization and border guards being attacked. This could lead back to the sectarian violence that lasted more than three decades and claimed more than 3500 lives.
President-elect Biden tweeted back in September, saying, “Any trade deal between the US and UK must be contingent upon respect for the Agreement and preventing the return of a hard border.” One of Brexit’s main benefits was a trade deal with the US, so many are hoping that Boris Johnson will be able to strike up a trade deal with Brussels.
