The EU withdrawal process facing the United Kingdom.

 The EU withdrawal process facing the United Kingdom.

Options

1.  No deal.

2.  Preferential access to the EU markets

"No deal"

This most extreme option required the United Kingdom to revert tot he status of a normal third-party EU trading partner, where trade is organized according to a set of basic guidelines set out by the WTO.

This radical option did not include any preferential access to the EU whatsoever - meaning that all EU borders, including the one dividing the Republic of Ireland with the UK's Northern Ireland, would have to be respected as if the UK were a foreign nation, with onerous restrictions on the movement of goods and people.  

 Preferential access

To have preferential access to the EU markets, three variations were considered:

• signing a basic free-trade agreement,
• continuing to be part of the customs union, or
• remaining in the EU single market, implying full acceptance of EU norms.

The decision on which path to take became so intractable at one point that it was feared that the United Kingdom would exit the EU with no deal at all, putting the UK at the same level as every other country in the world economy without any preferential trade agreement.

Trade wars end up hurting everyone, including the countries starting them.  Protectionist measures with the imposition of tariffs would certainly be met by retaliatory measures from other countries, leading to the loss of many more jobs than those "saved."

Understanding Brexit

Brexit referendum of 2016 in UK:  To stay or to leave the European Union?

Arguments for leaving the EU

United Kingdom had been paying to the EU billions of euros in extra funds - to support everything from agricultural subsidies to infrastructure construction in the poorer countries.  This money would return to make Britain a better place.

Arguments for staying in EU

The loss of access to preferential trade with the rest of Europe would, in fact, decrease economic growth and reduce the amount of money available to pay for health care and everything else.

Around the world, electorates were shaken by everything from increased immigration to interference from supranational institutions..  This has led to countries calling for limits on trade, immigration and almost everything else that seems foreign.  The problem is that in the twenty-first century economy - which is based largely on cooperation and free exchange of goods, services and ideas - going it alone almost always has negative economic consequences.

Post-Brexit Britain

One of the immediate effects of the referendum vote was a sharp decline in the value of the British pound.  

• Investors sold the currency because of the country's diminished economic outlook.  
• Without access to the EU market, exports were expected to decline precipitously, reducing income from foreign sales and making the country's currency less attractive.  
• In addition, the reduced purchasing power of the local currency meant higher prices for imported goods.  
• Overall, inflation quickly went from 0.4% at the time of the referendum to more than 3% in less than 2 years.

All other things being equal, trade halves as distance doubles

European Union was Britain's major trade partner, accounting for more than 40% of all British exports.  

The entire EU trading area Britain was being asked to leave, in fact, encompassed more than 30 countries, including the non-EU members, Iceland, Norway and Switzerland.

One of the axioms of trading with other countries is that, all other things being equal, trade halves as distance doubles.  

• Generally, trade with neighbouring countries is naturally much greater than trade with countries on the other side of the world.  
• By turning its back on its gigantic neighbour, the UK was opting for an economic path with dubious potential for economic success.

The head of the Bank of England saw the Brexit vote as an example of "deglobalization, not globalization" and predicted higher prices for consumers and the necessity of higher interest rates to keep inflation under control.