The UK, being a small island, has relied on trade for centuries – however, in 2016 it began breaking ties with its biggest trading partner, and future prospects were left unclear. Would the UK find new sources for goods or simply face crippling shortages for years to come?
One such possible outcome of the decision to leave the European Union which would be detrimental to the UK economy is the separation from the European Unions’ single market, also known as the Internal or Common Market, which would either completely cut off or at the very least inhibit trade within Europe, who was one of the UK’s main trading partners. Many businesses who depended on this trade would lose revenue and possibly be forced to close their shops. The European single market uses the Euro as a universal currency to trade with, which allows companies to maintain profits by holding euros instead of converting between various currencies and losing money due to fluctuations in the currency market, which is officially known as the forex or foreign exchange market. There are also fewer taxes on imports and exports when trading within the European Union, encouraging these countries to trade within Europe. This allows companies operating within the European Union, including those in the United Kingdom, to save profits and maximise revenue. Resultantly, it will cost these businesses combined millions, possibly even billions in the aftermath of Brexit.
Furthermore, the EU imposes higher taxes than usual on member states to trade with non-member states. As a result, the UK has not built strong trade links with other countries as the free market and companies within this do not have an incentive to trade with other countries if they can do it for cheaper within Europe. The outcome of this will be that the UK and the businesses within it will be forced to find new trading partners, and so may experience shortages for many goods or services after the separation from the European single market until they manage to replace the imports they have lost. It will also mean having to abide by different tax laws for each country they do business with. It will cost the UK billions in additional tax over the coming years until they forge better relationships with governments and get better deals on various imports.
In addition, many other businesses that interact with European countries and are involved with international trade may be forced to close down or retract their operations in the United Kingdom as they would lose their supply of capital and materials indefinitely, and so begin generating losses that may lead to a decision to quit. For example, car manufacturers who imported parts from Europe to produce their cars for sale in the UK will have to wait for new trade links to be formed and afterwards may have to pay higher import taxes for these goods, which can minimise profits and cause long-term damage that the company may never recover from. Furthermore, large international manufacturers like BMW who run factories in the UK to make selling there easier may simply choose to close their warehouses if it means they do not have to support failing businesses that are running on a loss, as they would have to accommodate for this loss using their revenue from other ventures. Therefore, it may just be easier for them to choose to abandon these factories, which would lead to sudden mass structural unemployment of thousands of workers who may be left unemployed for months or even years until international trade is once again stable and car manufacturers no longer have any fears of parts shortages.
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