On the Impact of Brexit
On June 23, 2016, the United Kingdom (UK) held a widely-known referendum on exiting from the European Union (EU). As it turned out, 52% of the voters supported Brexit and 48% wanted the UK to remain in the EU. UK Prime Minister David Cameron, who masterminded the referendum, announced his resignation and was replaced by Theresa May. Based on the results of the referendum, Theresa May’s government submitted the Brexit bill to the House of Commons, which approved it on February 1, 2017, authorizing Prime Minister May to start the Brexit process. At the end of March 2017, the UK government made the formal exit application to the EU in accordance with Article 50 of theLisbon Treaty, and kicked off the Brexit negotiations. After nearly three years of talks, the UK finally reached an agreement with the EU in January 2020 under the leadership of Boris Johnson, Theresa May’s successor, and officially left the EU on January 31, 2020, thus ending its 47-year EU membership and entering an 11-month transition period. On December 24, 2020, after several rounds of tough negotiations, the EU and the UK reached an agreement on their relations including trade, which cleared the obstacles for the UK to end the transition in 2020 as planned. On January 1, 2021, the UK officially concluded the transition period and achieved comprehensive political and economic independence as declared by Prime Minister Johnson earlier. What impact will Brexit have on the UK, European integration, and the international landscape amid major changes unseen in a century? This article attempts to address this question.
First, the impact of Brexit on UK’s economy and politics.
Undoubtedly, Brexit has a major impact on UK’s economy and politics. Since the British voted to leave the EU in 2016, the UK economy has been negatively affected. The UK has been highly dependent on the EU for trade, which accounts for about one half of its total. Before 2015, the UK had been the EU’s largest trading partner. It was replaced by the US in 2015 and fallen to the third in 2018. The EU’s export to the UK also declined after the Brexit vote. In 2019, the EU’s export to the UK accounted for 15% of its total, lower than that to the US (19%) and slightly higher than that to China (9%). In the same year, the EU’s import from the UK took up 10% of its total, lower than that from China (19%) and that from the US (12%). What’s more, according to the data released by Her Majesty’s Revenue and Customs in January 2021, the UK’s total import and export of goods decreased by 12.7% year on year in the first 11 months of 2020, among which export dropped by 15% and import by 11%, which was attributable to the impact of Brexit and the pandemic.
Since the Brexit referendum in 2016, the UK has attracted considerable foreign direct investment (FDI), mainly from the US and Germany, thanks to the devaluation of the British pound. The top three sectors favored by foreign investors are retail consumer goods, industry and financial services. However, according to the united Nations Conference on Trade and Development(UNCTAD) statistics, due to the negative impact of Brexit, FDI flows into the UK dropped in 2019 as compared with 2018, standing at US$ 59 billion and ranking No.8 among the top investment destinations. In November 2020, the UK government submitted the National Security and Investment Bill to the House of Commons, the main purpose of which was to tighten the scrutiny over foreign investment in British enterprises. The rules on acquisition contained in the bill obliged investors to report to the UK government on foreign direct investments involving nuclear energy, telecommunications, artificial intelligence, transportation, energy and national defense, and gave the UK government a five-year retrospective power. As far as domestic politics is concerned, the Conservative Party, which is currently in power in the UK, plays an important role in the Brexit negotiations and has won the support of most British voters. Therefore, it is highly likely to stay in power until 2025. As such, the UK will maintain overall political stability after Brexit.
However, from the perspective of international politics, the UK’s foreign policy will undergo significant changes after Brexit. At the Conservative Party conference held in Birmingham in October 2016 after the referendum, then UK Prime Minister Theresa May delivered a speech entitled “Britain after Brexit: A Vision of a Global Britain”, in which she said that after Brexit, the UK should seriously think about not only the new relationship with the EU, but also the relationship with the wider world. Boris Johnson, who was then Foreign Secretary and later succeeded May as prime minister, also stressed the need to “reshape Britain’s profile and identity as a greater global player”. In December 2016, he made a speech at the Royal Institute of International Affairs entitled “Global Britain: UK Foreign Policy in the Era of Brexit”, in which he elaborated on the UK’s political role and policy direction in global affairs after Brexit.
It goes without saying that the vision of “a global Britain” has become the UK’s diplomatic strategy after Brexit, which is to encourage the UK to move beyond Europe, take on a global perspective, and become an “independent” force in the world system, with greater accomplishment and influence in international politics. To deliver the foreign policy of “a global Britain”, the UK places more emphasis on the traditional Anglo-American relationship, sees the US as its most important ally, and coordinates, to the greatest possible extent, with the US in carrying out its global strategy.
Second, the impact of Brexit on European integration.
Overall, Brexit will have a two-fold impact on European integration. On one hand, it promotes European integration to a certain extent. On the other, it has an adverse effect on the integration process.
On the positive side, after Brexit, the EU is moving fast to turn the concept of “European Strategic Autonomy” into action. This concept was proposed almost at the same time as the Brexit vote. It was unveiled in the EU global strategy document “Shared Vision, Common Action: A Stronger Europe—A Global Strategy for the European Union’s Foreign and Security Policy” published in June 2016. While presenting this strategy, Federica Mogherini, then Vice President of the European Commission and High Representative of the European Union for Foreign Affairs and Security Policy, said that “After the referendum, we will indeed have to rethink the way our Union works. In challenging times, a strong Union is one that thinks strategically, shares a vision and acts together.”This shows that “European Strategic Autonomy” was officially endorsed by the EU almost at the same time with Brexit, and is closely related to the EU’s global strategy. It sets the direction for European integration after Brexit.
As the EU and the UK shaped their relations through arduous negotiations and Trump’s “America First” policy dealt a blow to the transatlantic relations, the EU started a heated debate on “European Strategic Autonomy”, which was expanded from the narrow sense of defense as articulated in the global strategy document to a broader sense that encompasses defense, science and technology, market, finance and institutions.
That said, Brexit does have an adverse impact on European integration. To some extent, negative effects outweigh positive ones. First, after the UK formally left the EU, the size and wealth of the bloc of countries was curtailed. At present, the UK’s nominal GDP ranks sixth in the world and second in Europe. Additionally, its population and land area are among the largest in the EU (ranking No.3 and No.8 respectively). Undoubtedly, the size, scale and wealth of the EU shrinks after the UK formally left the EU. (See table below)
(per square kilometer)
GDP ( in euros)
Per capital GDP (in euros)
For this reason, the EU will significantly cut its budget after Brexit, especially after the transition period ends. Before Brexit, the UK contributed a big share to the EU’s budget. In 2016, for example, the UK’s contribution to the EU budget was 19.4 billion euros after a membership-based rebate. It is estimated that the EU will lose about 5% of its budget after the UK leaves the EU. In order to fill in the gap, the European Commission has considered cutting the spending on regional development by 30%. This will only reduce the available development financing that less developed EU members are badly in need of, which is detrimental to European integration.
Brexit has a considerable impact on the EU’s economy. EU members with close trade links with the UK, such as Belgium, Cyprus, Ireland, Germany and the Netherlands, will bear the brunt. The auto and components industry will be affected the most. The UK has a large manufacturing sector that depends on the EU supply chain of auto parts. The exit of the UK from the EU’s single market will push up the transaction costs for both sides. In addition, the electronics and food processing sectors as well as the export of raw materials in the Ruhr Valley will also suffer. The UK now hosts the European Medicines Agency, the European Banking Authority, and the backup data center for the Galileo satellite navigation system. After the UK left the EU, the first two institutions will move to Amsterdam and Paris, and the latter will move from the UK to Spain. With the relocation out of the UK, these institutions will lose the professional support from their original host and pay for the high economic costs. All these will have a considerable negative impact on the economy, science and technology, and management of European integration.
Finally, Brexit will take a toll on the EU’sintegration of diplomacy, security and defense (especially the latter). The UK and France were two major military powers in the EU. It was the St. Malo Declaration jointly issued by the two countries in 1998 that kicked off Europe’s defense integration. The declaration statedthat the EU must have the capacity for autonomous action, backed up by credible military forces, the means to decide to use them, and a readiness to do so, in order to respond to international crises when the Atlantic Alliance is not involved. Since then, driven by the Franco-British vision of building the EU’s capacity for independent military action, the EU has made some progress in joint defense. This shows that the UK actually plays an important role in European defense integration, which will be obviously affected by Brexit.
Moreover, the UK is one of the largest spenders on defense R&D in Europe. The UK, France and Germany account for 92% of the EU’s 2 billion-euro expenditure on defense R&D. The UK also has strong intelligence capabilities and an extensive diplomatic network. Therefore, it was an important asset of the EU in diplomacy, security and defense. Brexit will certainly undercut the EU’s influence in foreign policy, security and defense. RAND Corporation estimated in one report that Brexit may weaken the EU’s collective defense capability by about a quarter. Therefore, the EU will still seek cooperation with the UK in defense integration. French President Emmanuel Macron made it clear that he wanted the UK to continue to participate in European defense integration after leaving the EU, while German Defense Minister Annegret Kramp-Karrenbauer proposed to establish an E3 (Europe 3) Group including France, Germany and the UK, which is expected to serve as a link between NATO and the EU.
Third, the impact of Brexit on the international landscape amid major changes unseen in a century.
“Major changes unseen in a century” is an apt characterization by President Xi Jinping of the contemporary international system in a fluid world. It also captures the shift of economic growth drivers in the world market, the changing balance of power in international politics, and the reshaping of the global governance system. Generally speaking, the most prominent change is “the rise of the East and fall of the West”: Western countries are grappling with serious domestic problems and crises, while developing countries, especially emerging market countries, have performed exceptionally.
Since the beginning of the 21st century, thanks to the advances in globalization, great changes have taken place in the global architecture which has long been dominated by European and American powers in the past century. The strength of non-Western countries continues to grow in the new millennium. The focus of global economic growth shifts from Europe and America to Asia and other developing countries and regions. It is worth noting that Brexit also has a considerable impact on the international landscape featuring “the rise of the East and fall of the West”, which has been prompted by the unprecedented changes in a century.
First, Brexit has taken a toll on the UK economy. Its GDP dropped from the fifth place to the sixth in the world, and was overtaken by that of India, an emerging economy. This clearly reflects the impact of Brexit on “the rise of the East and fall of the West”. According to theestimation of the IMF (International Monetary Fund) , due to the impact of Brexit and COVID-19, the UK’s GDP will contract by 10% in 2020, which is lower than not only emerging economies such as China, India and Brazil, but also advanced economies such as the US, Germany, France, Italy and Japan.
Second, Brexit will have a negative effect on European integration. The overall strength of the EU will also be sapped significantly. This means that the influence of the EU as a “pole” in the contemporary international system will greatly diminish. Whether the EU can remain a “pole” has been thrown into doubt. According to the BBC, a diplomatic dispute broke out between the UK and the EU over the status of the EU ambassador to London. The UK refused to grant Joao Vale de Almeida the same, complete diplomatic status as other ambassadors to the country. The UK Foreign Office wanted to treat the EU delegation only in the same way as representatives of international organizations. This echoes what the Trump administration did by downgrading the EU from an “ally” to an “international organization” in January 2019. Although the US government later restored the diplomatic rank of David O’Sullivan, the EU ambassador to the US. The EU and the UK also engaged on this issue. This speaks to an indisputable fact that the EU’s international standing has been on the decline in this changing world.
Finally, Brexit adds complexities to the transatlantic alliance, which also had an impact on the fall of the West. Since the Second World War, the UK has always maintained a special relationship with the US, both during and after the Cold War. When it was a member of the EU, the UK can be a coordinator between the US and its continental European allies in the transatlantic alliance. Moreover, the UK can coordinate the relations among EU members by virtue of its own advantages in defense and its special relationship with the US. With the UK’s complete departure from the EU, problems have arisen in the coordination among the US and Europe in the transatlantic alliance and between the US’ European allies. Without the UK, which plays an major role in defense and has a special relationship with the US, there will be a lack of coordination both in the transatlantic alliance and among EU members. It is precisely for this reason that the fall of the West will be more prominent in the shifting global landscape amid changes unseen in a century.
Ye Jiang is Research Fellow of the Shanghai Institutes for International Studies.