4.3 Arguments for UK Membership of the EU (Arguments Against Brexit) Flashcards
1. What is one of the arguments for UK membership of the EU?
The UK benefits from increased trade given the size of the EU market, a market of over 500 million consumers. This is because tariffs within the EU do not exist, allowing trade creation to occur where the UK has comparative advantages. Trade creation stimulates an increase in trade, leading to a more efficient allocation of resources and a gain in area A. This benefits the UK by allowing net exports to grow, accessing a market without any costs, which stimulates short-term growth and reduces unemployment in the economy. Brexit takes away this advantage and will lower economic growth and increase unemployment as trade suffers with European partners, with the UK at least suffering from the common external tariff it will have to pay, shifting the Suk curve back up to Suk+CET. Given the size of the UK’s current account deficit, any export revenues are much needed and will be put at significant risk due to Brexit.
Evaluation: What is the condition for this argument to hold true post-Brexit?
This argument is heavily dependent upon UK negotiation post-Brexit. If the UK government is able to negotiate a free trading position or at least a strong trading relationship with the EU with minimal protectionism, UK exports can still be highly demanded within the EU. Additionally, the UK, in negotiating trade deals with non-member countries, can more than recoup any remaining lost export revenue.
- Why is the UK seen as an attractive economy for foreign businesses?
The EU’s large market size makes the UK a great economy for foreign businesses to invest in. Alongside other benefits of being in the UK such as a flexible, educated and skilled labor market, relatively low corporation taxes, ease of accessing finance, and strong infrastructure. Foreign businesses see the UK as the gateway to Europe and a country with big export potential to other EU countries. Leaving the EU is likely to result in outward FDI, lower economic growth, and unemployment as a result.
Evaluation: What additional impact does leaving the EU have on the UK’s balance of payments?
This argument carries even greater weight considering the potential impact on the UK’s Balance of Payments. The UK’s current account deficit is likely to worsen both in the short and medium term post-Brexit due to a large depreciation of the pound given the UK is a large net importer. Over time, there may be a reduction in export revenue as the UK formally leaves the EU without trade deals yet in place. Brexit puts financing the current account deficit under huge pressure (by running a current account surplus), which could lead to investor panic, a currency crisis, and a full economic crisis for the UK economy as some economists are predicting.
- How has Brexit affected the value of the pound?
Brexit has triggered a large drop in the value of the pound. This is because Brexit came as a huge shock to investors, leading to panic selling of the pound due to a lack of confidence over the state of the UK economy post-Brexit. This weaker pound can be beneficial for the UK as exports become cheaper and imports dearer. The demand for imports and expenditure on imports will decrease, whereas the demand for exports and revenue generated by exports will increase. Both effects will improve the trade balance, rectifying a current account deficit. However, because Britain is a net importer, a weak exchange rate is dangerous. It will make imports dearer when bought in foreign currency, thus increasing costs of production and leading to cost push inflation, reducing economic growth, and potentially resulting in stagflation.
Evaluation: What could be the long-term implications of the weak pound?
Longer term, considering the weak pound is expected to remain for the foreseeable future, this boost to export competitiveness could be exactly what the UK economy needs to accelerate the process of re-balancing. If a weaker pound incentivizes more businesses to focus on export opportunities, the UK may develop more of a manufacturing and exporting base using the weak pound as a competitiveness advantage. This could allow for improvements in the current account position and more balanced economic growth. However, this is a long way off becoming a reality.
- What is one of the disadvantages of leaving the EU?
Staying inside the EU maintains the UK’s very strong relationship with Europe, whereas leaving the EU creates uncertainty and difficulty over how to negotiate appropriately to maintain this relationship. While there are various models the UK can adopt while outside the EU, such as the Norwegian, Swiss, or Turkish model, each has its own flaws including still having to pay membership fees or allow free movement of labor to keep certain benefits of EU membership like free trade. The concerns with taking a pick-and-mix approach include retaliation from the EU and a potential trade war, with the UK suffering more through a loss of export revenue than EU countries. However, if the EU reacts with retaliatory protectionism, the UK is free to negotiate trade deals with non-member countries to compensate for any loss in export revenue from EU trade.
- How could the loss of immigration affect the UK economy?
The loss of immigration could hurt the UK economy. EU migrants entering the UK often fill jobs that would otherwise go vacant in large sectors such as agricultural, cleaning, construction, and manufacturing. As a consequence, the productive potential of the UK economy could decrease with lower rates of economic growth over time. Such immigrants also contribute significant tax revenues to the UK government, allowing spending on education, healthcare, infrastructure, and welfare to take place to meet the needs and wants of the British population. If they are told to leave the UK or immigration is reduced, taxes may rise to compensate for the lower tax take.
Evaluation: What impact does uncontrolled EU immigration have on public services?
Immigrants do, however, put pressure on key public services like healthcare, education, and infrastructure. This is because EU immigrants are also eligible for many of the same rights as UK citizens, such as free access to the NHS, free access to state schooling, and in some cases, access to the same benefit payments. Therefore, the government spending side to uncontrolled EU immigration may outweigh the tax revenue paid by them, not deteriorating public finances as much as theory suggests.
- What is one of the arguments for Brexit?
UK businesses will receive a large benefit. This is because outside the EU, the UK will be free from the burdensome regulations that increase costs of production for UK businesses and make it harder to produce and trade. These regulations include product standards, health and safety standards, employment regulations, agricultural policy, regional policy, fisheries policy, environmental regulations, and others. Consequently, there may be more ‘free’ trade outside the EU with greater jobs being created, higher economic growth, and thus higher incomes in the UK.
Evaluation: What are the potential drawbacks of losing certain EU regulations?
Certain EU laws are beneficial for key stakeholders in the population such as workers and consumers. Strong EU employment regulation protects workers from simple firing, with maternity and paternity leave and with working conditions. For consumers, strong EU laws ensure products sold are of high quality meeting high standards. Losing these could be against the interests of such stakeholder groups though it is likely that the UK government will simply replace these regulations with their own. Such sovereignty could outweigh the loss of EU-made regulation, which many argue is too strict and severe in many areas.
- What is another argument for Brexit?
UK sovereignty will be restored. This is because the UK will now be able to freely set its own laws, control its own borders, and not have to pay EU membership fees. As a consequence, UK citizens will be free to vote for the laws and policies they want their own elected governments to enact. Additionally, with membership fees not being paid to the EU, this money is freed up to spend on key UK public services like schooling, healthcare, and infrastructure.
Evaluation: What is the counterargument regarding the membership fees?
The exact membership fee figure is hotly debated and not exactly known, with the UK treasury estimating it to be approximately £8.5 billion. Those in favor of continued UK membership of the EU argue that this is a very small price to pay for the large benefits of being part of the EU, such as trade, attracting FDI, job creation, and economic growth. They argue that the benefits outweigh the membership costs. Furthermore, the likelihood of membership cost savings making a large difference in education, healthcare, and infrastructure is low, as yearly budgets are close to or in excess of €100 billion.
- What is the advantage of being outside the EU in terms of trade?
Being outside the EU allows the UK to negotiate its own free trade deals with countries outside the EU that have previously suffered from trade diversion. Trade diversion occurs when trade with countries outside the EU decreases due to the EU’s common external tariff (CET), making non-EU products uncompetitive. By negotiating free trade deals, the UK can potentially gain more export revenue from trade with non-EU countries than is being lost as a result of potential lost EU trade.
Evaluation: What are the challenges and uncertainties associated with negotiating trade deals outside the EU?
While this argument seems strong in theory, in reality, such negotiations are much more complex and time-consuming. Trade negotiations will need to take place with every country, including the EU itself, and over every market. This process can take many years before any trade deals are completed and enacted, especially with large countries like the USA and China. In the meantime, the UK will have to follow WTO rules, which require uniform application of tariffs and protectionism to avoid discrimination. This could reduce export revenues for the UK significantly in the short term and create uncertainty over longer-term trade relationships, affecting domestic jobs and businesses reliant on trade.
