How Has Brexit Been Going? | Economics Explained

it was just over five years ago that the citizens of the uk went to the polls to vote on whether or not to leave the european union a non-binding referendum which most onlookers saw as little more than an opportunity to silence a vocal minority shocked the world when it came back in favor of the decision to leave three and a half years later after a long and drawn-out period of negotiations the uk finally left the eu ending its 47 years of membership at the time there were widespread concerns that this would prevent people from traveling back and forth for the uk it had the potential to shut down certain businesses especially those catering to frequent travelers from the eu and above all else it threatened the living standards of average brits who had benefited from the eu membership whether they realized it or not of course all these concerns came true to an extent but not necessarily because of brexit but rather the global pandemic which hit the country particularly hard during the lead up to the actual exit day this has made it difficult to assess what hardships are being felt as a result of brexit and which hardships would have been felt anyway as a result of the pandemic by the same logic and in the interest of fairness it makes it difficult to determine if the promises made by brexit supporters were founded in reality given that even the best economic plans would have been struggling in the global economic environment of 2021 so how much damage has brexit done to the united kingdom's economy has the uk benefited from the fact that brexit took place during the pandemic and finally what will this all mean for the uk's ability to recover from the pandemic once we have done all of that we can put the united kingdom on the economics explained national leader board now one of the biggest issues facing the uk and the years between the referendum and actually leaving the eu was the uncertainty around what a post-brexit uk would actually look like there were a range of conflicting theories suggesting everything from it being some kind of pommy utopia finally free from the shackles of the continent all the way down to it being armageddon complete with rioting in the streets and empty shelves of course the second option doesn't sound great but what might have been worse is not actually knowing which way the country would go the biggest and most immediate impact of brexit would be on trade the european union is first and foremost a union of free trade the countries within the union all agree to trade amongst one another without levying tariffs or imposing import quotas this is further assisted by the fact that most of the remaining members have used the same currency the euro since was introduced in 1999. on the opposite side of the same coin the eu imposes heavy restrictions on trade with non-member countries as a way to incentivize eu members to trade with one another rather than trading with an outsider it does still happen and exceptions are made for certain goods and materials that are not abundant within the eu natural gas from russia that's fed germany is a perfect example of this now i'm not going to get into the benefits and drawbacks of free trade in this video because it really is beside the point regardless of if this kind of free trade region is beneficial to its members the uk is now an outsider they have gone from being the beneficiary of free trade agreements to the victim of harsh trade restrictions this wouldn't be good for any country but it's especially bad for the uk given just how dependent they are on trade to support their economy to understand just how important we need to look at a figure called trade intensity when economists look at trade figures they normally focus on net trade as in exports minus imports if we want to calculate gdp we look at the sum total of consumer spending plus government spending plus investment and net exports net exports also make up the balance of trade and by extension things like current account balances so it's easy to see why it gets a lot of attention but consider this imagine two countries one that has no imports and no exports it's completely isolated then imagine a country that imports a trillion dollars worth of goods in a given year and exports a trillion dollars worth of goods as well both of these countries would have the exact same net export figure but the second example would likely be doing much better for itself a trillion dollars worth of exports would require the employment of millions of people and a trillion dollars worth of imports would massively improve the average living standards for those same workers the second country would also naturally be much more dependent on free trade agreements so that's why it's also important for economists to consider trade intensity figures trade intensity is just the sum total of imports and exports divided by gdp so if we take our oversimplified example of these two countries here assume they both have a gdp of four trillion dollars then the first would have a trade intensity of zero percent where the second would have a trade intensity of 50 percent you can clearly see that trade intensity is often a much more indicative figure of what is really going on in an economy so why is this important to the uk well the uk has one of the highest trade intensity levels in the world the uk's trade intensity was 63 in 2019 compare that to other major advanced trading nations like australia at 46 japan at 35 percent and the us at 24 and you can start to see just how important trade really is to the uk historically this makes sense the uk itself is a relatively barren rock in the middle of the atlantic devoid of much of the natural resources it would need to properly fuel its economy it has also historically been a great colonial power so trade is something that came naturally to it as it became more and more important to the world economy throughout the last few decades this is where that uncertainty about what brexit would look like becomes really important again a worst case scenario like the much feared no no-deal brexit with hard borders and no free trade at all between the eu would not have been good obviously but it would have been possible to plan for let's say you ran a tool manufacturing business you have a small factory in a warehouse and you primarily send high-end machining equipment to other businesses within the uk and across the eu once those referendum results came in you would have been put in a pretty difficult situation without a free trade agreement in place you would no longer remain competitive in europe because you would need to pay import taxes on all of the tools that you sell there you could get around this by setting up a separate factory in the eu but that's a huge capital investment and if it turns out that the uk is able to negotiate a favorable trade deal with the eu then it would have been an investment made for nothing you could also save up money just so that you have cash in hand ready to buy a factory quickly if required but then you have a pile of cash sitting around and not being reinvested into the business or being paid to new employees or even getting sent out as dividends to your investors money sitting around waiting for something to happen does not help the economy money being used for any of these purposes does if business owners knew what was happening even if it wasn't good news they could take measures to deal with it the combination of a drawn out decision to actually leave followed up by a year-long transition period combined with the existing economic fallout from the global pandemic made it incredibly hard for individuals businesses and even entire governments to plan much beyond the immediate future but of course now that we have the benefit of hindsight we can actually look at a proper before and after of brexit trade has dropped significantly no surprises there especially considering the impact of the pandemic on things like travel and general business activity trade intensity fell from 63 in 2019 to 55 in 2020 this might not sound like a huge drop and it still puts the uk well ahead of most other nations but this figure was captured during the so-called brexit transition period that period is now over and the uk's trade relationship with eu is now being defined by the eu uk trade and cooperation agreement or tca for short the timeline is that the uk officially left the eu at the beginning of 2020 the transition period agreement was then in place until the end of 2020 and now the tca has been in place for just over 11 months the terms of the tca which is only partially in effect at this point are in general much more limiting than the terms of the transition agreement and the terms of the transition agreement were in turn much more limiting than being a full member of the eu it is of course less limiting than a no deal brexit but perhaps not by much goods exports to the eu are down significantly this year meaning trade intensity may very well see another 10 slide in 2021 on the conservative side the center for european reform has attempted to isolate the impact of brexit by using a statistically modeled doppelganger uk to assess what would have happened had the uk remained in the eu that analysis concluded that since the transition period ended leaving the single market and customs union had reduced uk goods trade by 15.8 percent as of august 2021 15.8 is huge this will directly impact hundreds of thousands of workers and not for the better now despite being the first thing that everyone thinks of lost trade might not actually be the biggest hit to the british economy rather it might be lost manpower you might have seen the headlines about empty shells and gas stations turning away customers in the uk at the moment well this has been caused by a severe labor shortage the uk is down about 100 000 truck drivers many of whom used to be non-british citizens who worked in the uk under the eu shared labour agreement you see prior to brexit any citizen from any eu country could live and work in whatever other country they wanted to within the eu this had some major advantages like companies been able to leverage the best and brightest from a large labor pool and it had some disadvantages like the brain train pulling promising young workers from poorer countries to richer countries where they could earn more money furthering the divide i really can see the arguments for both sides here but regardless of all of that truck drivers were one of the most represented groups of workers taking advantage of this policy truck driving in general lends itself to being on the move when you combine that with free trade agreements across a relatively small landmass and language barriers not being a huge issue to driving a truck around it's no wonder that a lot of european truck drivers basically just went where the demand was this meant that overall the eu needed a smaller trucking fleet than what would exist if all of these countries maintained all the trucks that they needed year round the downside of this is that as the uk left this shared labour pool it was shut off from the workers it needed to keep the country running the same problem is becoming apparent with other seasonal workers as well especially in agriculture where workers from across the channel were responsible for a large portion of harvesting activities which take place once or twice a year this is raising concerns over empty tables at christmas this year which is leading to panic buying which is further accelerating the supply chain shortages the country is facing the government has tried to fix these issues by granting 5 000 3-month emergency visas to truck drivers and putting military drivers on standby if things get really dire altogether this drop in trade employment and consumption has cost the government around 30 billion pounds just over 41 billion dollars in lost tax revenue coincidentally that is roughly the same amount that was raised by introducing new taxation measures earlier this year heavy taxation during a period of economic turbulence is the exact opposite of what most economists recommend but the money needs to come from somewhere the uk's fiscal watchdog the office for budget responsibility has projected that all of these factors working together will mean that brexit will result in a 4 reduction in the uk's long-run gdp this is on top of a 2 reduction in gdp projected to be caused by the pandemic again this might not sound like much but the uk really hasn't had sustained growth since the gfc this four percent hit could genuinely push its economy back over a decade alright now it's time to put the uk on the economics explained national leader board starting as always with gdp the uk is the fifth largest economy in the world with an annual output of over 3.1 trillion us dollars it's still well behind the true superpowers china and america also comfortably behind japan and germany but it still gets a 9 out of 10. that output is spread between 67 million people to give the country a gdp per capita figure of just over 46 000 us dollars this is pretty much in line with its old european peers like france and germany and it gets a seven out of ten stability and confidence is really difficult to say of course this is a completely subjective measure the country is obviously going through some turbulence but it has historically been seen as one of the most stable nations in the world especially for things like banking we actually made an entire video on this not too long ago so go and check that out if you are interested look it's still an advanced nation with robust laws a good financial system a well-regarded currency and a functioning democratic system so it gets an eight out of ten five years ago it would have been the easiest 10 out of 10 ever growth has not been great as we saw earlier in this video its gdp is still below its previous peak in 2007. since then it has been the victim of the gfc the eurozone crisis brexit and the pandemic it's certainly resilient and hasn't fallen much but it hasn't grown it gets a three out of ten finally industry this is surprisingly strong the uk is still home to a healthy industrial sector which manufactures everything from high-end sports cars to cutting-edge jet engines it's also home to the second largest financial centre in the world so the country gets a 9 out of 10. altogether that gives the united kingdom an average score of 7.2 out of 10 a very healthy score indeed which puts the nation into equal third on the leaderboard alongside france the netherlands and taiwan thanks for watching mate bye

Channel: Economics Explained

Views: 3,347,588

Keywords: brexit, united kingdom, european union, brexit 2021, uk petrol shortage, united kingdom economy, brexit 2020, brexit economics, brexit trade deal, uk brexit, boris johnson, united kingdom trade, supply shortage, economics, economics explained, brexit explained, what is brexit, brexit news, european union countries, how is brexit going, brexit economics explained, how has brexit been going, economics explained brexit, economics explained uk, brexit consequences

Id: P0G3lYTOI0Q

Length: 13min 59sec (839 seconds)

Published: Fri Nov 12 2021

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[u/nousernameleftatall]

So yes then

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He’s interesting to watch!