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Hot Topics in Globalization
Globalization is one of the most important topics that affect our world. Globalization by definition is a process of interaction and integration among the people, companies, and governments of different nations, a process driven by international trade and investment and aided by information technology. One of the more recent problems in the world has been that of the upcoming departure of the United Kingdom from the European Union, known as Brexit. The UK held a vote to decide whether to stay in the EU or leave, and with a 51.9 percent majority they decided to leave. This has lead to uncertainty in the population, due to uncertainty of the future and the potential downfall of the United Kingdom. In the United States it has caused uncertainty with regards to the stock market and trade. With Donald Trump, becoming our newly elected president, it will be interesting to see what foreign and trade policy changes will be made that effect our relationships with the EU and UK. The day-to-day life of most UK citizens hasn’t been affected all that much, it will take time for economical and political affects to affect the population. This paper will discuss some of the economic and political issues that the United Kingdom, European Union, and United States now faces.
Video on Brexit
Economic Body (Trade)
First, the economic state of the UK will be affected by leaving the EU, with respect to trade and currency. Trade will be affected because in the EU there is a provision known as the European Free Trade Area, which allows the members of the EU to trade with each other without having to pay tariffs. Some reasoning behind wanting to leave the EU was that they wouldn’t have to pay into the membership, and would therefore have more money in which they could cut taxes. However, with them leaving they may now have to pay fees and additional taxes for trading with EU members. This would prevent UK corporations from having to pay tariffs, which would greatly cut into profits for corporations and create barriers to entry for small businesses.
Economic Body (Laissez-Faire)
Next, the less government intervention the better, the market is better off in a laissez-faire system. The greatest economists and brightest minds are in the private sector, which is where the money is. Great economists don't take low paying government jobs if they want to be great and make a lot of money. So the best thing for the UK would be for the government to halt their intervention in the market, it would free up businesses both large and small. While also being able to fund entrepreneurs who come up with moneymaking ideas. Businesses either survive or fail, the government bails out failing corporations, a corporation fails due to poor management or not meeting the customers wants or needs. In a laissez-faire system it would let the failing businesses fail, and open up the old space with new ideas for a better business.
What do you think the US is going to regarding foreign trade?
Economic Body (Currency)
Now, another drastic impact on the economy will be that of currency. The UK leaving the EU creates political and economic instability, which would decrease the values of the pound and the Euro. The pounds decrease would be the result of enormous amounts of debt that the UK has, as well as its unstable stock market. Many investors in the stock market may pull their investments due to the potential instability in the nation, which would result in a recession. When currency is uncertain investors tend to invest in certain assets, like housing and energy. This is bad; investing in housing while government intervention is high is what led to the financial crisis in the US. Many economists predict that the UK will fall into recession due to its high debt, political instability, and decrease in value of currency. Recession is very tough for the economy, the flow of money is slow, and businesses struggle to survive due to lack of income. Yet, recession shows that the economy is on the mend and there is a cleansing of failing businesses.
Economic Body (Currency Continued)
Now, another currency that will be affected by the UK leaving the EU will be the Euro. The UK leaving hasn’t just created economic and political instability in their own country, but the entire EU. This may in turn decrease the value of the Euro compared to the American Dollar. Most currencies in the world depend on the dollar as the most significant measure of value. Ever since 1971, when President Nixon changed the measurement of money there has been a high fluctuation in value. Meaning, in 1971 a dollar was worth 1/35th an ounce of gold, over the years this has changed and fluctuated, to the point were under President Obama it is over 1/1000th an ounce of gold. A lot of the future currency worth will depend on whether President Trump wants a weaker or stronger dollar.
On to my next point, one may ask how these two issues can affect one another? They will affect one another because; with decreasing value of currency the UK won’t be in a position to import as many goods. This is because they simply can’t afford to, their value of currency is decreasing with respect to the Euro and the Dollar. Therefore, they will be purchasing less from other countries, which then affects trade. Instead of a country that is mainly concerned with imports they will be more export driven. Being more export driven will result in more manufacturing jobs and less service jobs.
Map of Europe
The map below represents where United Kingdom is in relations to the rest of Europe. Most Western European countries represent the EU.
Map of Europe
Political Body (Europe)
Second, the political affect of the UK leaving the EU could be a troublesome issue. Shortly after Brexit, Conservative Prime Minister of the UK David Cameron resigned, and Theresa May took his place. Under the provisions of Article 50 it takes two years for the UK to leave the EU and no longer be accountable for the EU's treaties. Now that the UK will be leaving the EU, there is a good chance of Scotland leaving the UK. The last referendum in 2014 was a close vote in which Scotland decided to stay with the UK. However, now that the UK is leaving the EU it creates economic, political, and social instabilities. Scotland has already disapproved of the decision to leave the EU as its export economy is greatly impacted by free trade within the EU. As Alisa Henderson states, “over half of individual polls in England show ‘Leave’ majorities (2/5 in Wales). By contrast, Scotland and Northern Ireland are firmly in the ‘Remain’ camp.” This shows that there are major differences in opinion within the UK on whether to stay or leave the EU. Another troubling issue is that the main opposing party to the Conservative party, the Labour party, is having major problems within their own party. Jeremy Corbyn who was elected less than two years ago has encountered lack of support from his party, due to his lack of leadership. However, unlike in the US there are many political parties that have a chance of becoming the next elected party. It will be interesting to see what direction the citizens of the UK will vote for in the next election.
Political Body (US)
Another area worth keeping an eye on is that of the political situation in the US with respect to foreign policy with other countries. With Donald Trump being the newly selected president of the US, his decisions on foreign policy and our relations with the EU will be huge. I believe that Donald Trump may impose a higher tariff on imports to the US, which will in the US create more manufacturing work. However, it will affect the UK and EU in that it will cost more for them to export goods to the US. The US is an import country currently, however, if higher tariffs were to be imposed than the US may shift to an export country once again. So this is something to keep an eye on in the coming years.
In conclusion, Brexit is an ongoing issue and could potentially be very harmful or beneficial to the UK, EU, and US. The economies of the UK, the EU, and the US will be affected, some for the better but mostly for the worse. Now, with Donald Trump becoming the President of the United States it brings more uncertainty to the economic world. America's foreign policy is likely to change under Trump, which will have an effect on the EU and the UK. If America is accepting fewer immigrants due to harsher vetting systems, then the EU and UK could see an increase of immigration. The immigration is actually a good thing; immigrants tend to take the low-income low quality jobs. This leaves natural citizens the opportunity to get a better education and obtain a successful career. Immigration also helps stimulate the economy, because immigrants spend the money they make on clothes, food, or other needs, increasing business for the other sectors. We will have a better picture of what is to be within the next year. Overall it is an exciting, yet fearful time for the economic in political world in the US and abroad. I am optimistic that the UK will figure out their economic and political situation within the next two years that they are still in the EU. The US will have to wait and see what policies Donald Trump enacts, as well as the rest of the Republican ran government sectors. A lot of global fates with regards to the political, economical, and environmental factors will be decided very soon, it is a very exciting time we live in!