How Britain Can Succeed After Brexit

Since a small majority of British voters opted for withdrawing the United Kingdom from the European Union last summer, the majority of the media coverage has focused on how this withdrawal will damage the UK’s economy and its standing in the world.  This has been particularly true in the other 27 European Union member states, where coverage of “Brexit” has been filled with vitriol and doom-mongering.  However, while the process of withdrawing from the EU will certainly cause uncertainty and disruption within the United Kingdom, it is by no means assured that Britain cannot prosper outside of the EU. 

It is important to remember that, many times in its history, Britain has stood apart from its continental European neighbors, choosing instead to focus on internal issues, or its interests outside of Europe, only to re-engage with the continent when it needed to maintain the balance of power there. With the United Kingdom withdrawing from Europe, and with the United States also largely losing interest in European affairs, many of the old continental European rivalries that threatened this regional balance of power are likely to begin to resurface, probably not immediately, but over a longer period of time.  This could result in Britain returning one day to its role as the balancer of power in Europe, particularly as it will remain one of the region’s leading economic and military powers. 

On the political front, the impending British withdrawal from the European Union poses some serious challenges, but is nevertheless something that London can manage.  Even after the UK withdraws from the EU, it will retain significant political influence in Europe, particularly in times of crisis.  This is due to the fact that Britain possesses military capability and international alliances that are as robust as any other European power.  Moreover, the UK will continue to act as the vital bridge connecting North America with Europe, something that most EU member states are loathe to give up at a time of growing unrest around the periphery of Europe.  In fact, it is these strong political and defense ties with countries further abroad that are likely to shape the UK’s political future, as it hopes to enhance its relations with countries such as the United States, Canada and Australia.  As such, Britain will still be able to play a significant, if still shrinking, global role outside of the EU.

As important as the political and security aspects of Brexit may be, it is the economic aspects of the British withdrawal that are causing the greatest concerns and it will be Britain’s post-Brexit economic performance that determines whether or not Brexit is eventually viewed as a wise decision or as a devastating mistake.  There is little doubt that Britain’s trade relations with the rest of the European Union will be disrupted over the next few years, as it remains to be seen if the UK will retain some level of preferential access to the EU’s single market.  However, it should be noted that, if the UK does not receive any level of preferential access to this market, it is likely that the British pound will weaken as investors fret over the impact of a “hard” Brexit, thus mitigating some of the impact of any tariffs imposed on British exports to the EU, and maintaining a degree of export competitiveness for British-based goods and services destined for other European markets.

Nevertheless, there is little doubt that British exports to the European Union will suffer over the near-term.  As such, Britain will need to find new export markets beyond Europe to offset this expected loss.  Fortunately for the British economy, the UK has already become less dependent upon the EU as a market for its exports.  20 years ago, nearly 60% of exports from Britain went to EU markets, while today, that figure has fallen to less than 45%.  Instead, British exports to markets such as the United States, China and India have risen markedly in recent years and are expected to continue to do so in the years ahead.  While these markets will not completely off-set any near-term losses in European export markets, their long-term growth potential is much higher than that of nearly all European export markets and they will continue to add to their share of British export revenues.

Foreign investment is another area in which the British economy is already feeling the impact of its impending withdrawal from the European Union.  Many firms in vital sectors of the British economy such as banking and insurance have already announced plans to move some of their more European-focused operations out of the UK and to other financial and insurance sectors in the EU, such as Dublin or Frankfurt.  Should a “hard” Brexit occur, companies operating in these sectors will be forced to move even more staff and more operations to other EU member states, causing significant disruptions for what have been key growth industries in the UK.  However, once Britain is outside of the EU, may find itself freer to pursue foreign investment, and there is little doubt that the UK has been one of the world’s most successful countries in terms of attracting high-growth investments in recent decades.  This should persist after the withdrawal from the EU.  For example, investment from US-based high-tech and high-growth firms has soared in recent months, even with the uncertainty surrounding Brexit hanging over the British economy.  If such high-growth firms retain their confidence in the UK, the country’s post-Brexit future will be much more assured.

Undoubtedly, there will be many challenges ahead for the United Kingdom, both during the negotiations with the European Union and in the years after it leaves that organization.  Internally, we have already witnessed how Brexit can destabilize what had been one of Europe’s most stable political situations.  Currently, a fragile Conservative government under Prime Minister Theresa May is in power, dependent upon the fickle support of the Ulster Unionists, and its bargaining position vis-à-vis the EU has been weakened by its tenuous grip on power.  Moreover, Brexit has threatened the unity of the UK, with separatists in areas such as Scotland and Northern Ireland calling for a withdrawal from the United Kingdom so that their regions can remain a part of the European Union. 

There are many external challenges facing Britain as well in the coming years.  Many European Union member states want to punish the UK for withdrawing from the EU, while others hope to weaken the position of a post-Brexit UK for their own benefit.  Likewise, while British political leaders speak of enhanced ties with countries such as the United States, Canada, Australia and the world’s fast-growing emerging markets, it remains to be seen if these countries will embrace stronger relations with a UK that is outside of the European Union.  Nevertheless, while these challenges are daunting, Britain has shown repeatedly throughout its history that it is a country that can adapt to challenging situations and that can go it alone, at least for a while.  Given the turmoil caused by Brexit, it will need to show such resolve once again in the years ahead, but it would be unwise to bet against Britain’s chances.