British voters delivered a shock to global markets on Thursday with their 52-48% vote to leave the European Union. When the turmoil subsides, more sober-minded Brits may come to regret their decision to abandon their four-decade membership in the continental-sized common market.
For now, Great Britain remains a full member of the EU. Once it initiates its exit under Article 50 of the Lisbon Treaty, divorce proceedings could take as long as two years. Meanwhile, Britain remains the world’s fifth largest economy, a nation open to the world and a natural ally of the United States.
In the longer run, leaving the EU could take a toll on Britain by reducing its trade, investment and, yes, migration ties to the rest of Europe. On migration, the leave side was shameless in whipping up fears about an unchecked inflow from other EU countries. In fact, immigration has been an important component of Britain’s relative economic success.
Post-Brexit Britain may suffer on both jobs and free trade
As a member of the EU, Britain enjoys one of the best growth rates and lowest unemployment rates in Europe. In the past three years, while the country has accepted 700,000 immigrant workers from other EU countries, its economy has created another 1 million jobs for native British workers. EU immigrants in Britain are not the poor huddled masses displayed on pro-leave billboards. They are on average better educated than native workers, with 130,000 of them working for the National Health Service as doctors, nurses and care workers. And if a non-EU Britain denies free entry to EU citizens, the status of the 1.2 million Britons working on the continent will be in jeopardy.
A post-Brexit Britain will also lose its duty-free access to the EU market, which buys about half its exports. It can negotiate a trade agreement with the EU, but France and Germany may prove to be difficult negotiating partners. If the UK wants to join Norway and Switzerland as members of the European Free Trade Association as a non-EU member, it will also need to accept the open movement of labor and make a financial contribution to the EU—which backers of the leave vote would find hard to swallow.
Without open access to the huge EU internal market, Britain will be a less attractive place for U.S. companies to invest. Major U.S. multinationals such as Chase Bank are already planning to shift thousands of jobs to France and other EU member states where the domestic business climate may not be as friendly but where they are still inside the huge EU common market.
EU could become even more centralized and bureaucratic
The United States can do itself a favor by negotiating a separate free-trade agreement with Britain once it leaves the EU. Such a treaty should come together easily, given Britain’s pro-trade leanings and strong historic ties to the United States. In the longer run, trade will continue to flow across the Atlantic and the English Channel relatively unfettered because of the enormous mutual benefits from existing commercial ties. Just as Britain needs its EU neighbors to prosper, so too, does the EU need Britain to prosper.
More worrying is the institutional impact of Brexit. With Britain out, the EU could become even more centralized and bureaucratic. Externally, its trade relations with the United States will probably become more prickly without Britain’s pro-market and pro-American influence. Within the UK, an independent Scotland may become irresistible. The 62% of Scots who voted to remain in the EU will plausibly argue that they should not be dragged out against their will.
Despite what some commentators claim, this was not a vote against “global capitalism.” Most Britons want their nation to remain an important player in the global economy, with all the opportunity and influence it provides. It was instead a vote of frustration against an EU bureaucracy that was rightly seen as infringing on British sovereignty. The EU elites have only themselves to blame. If serious reforms do not follow, other member states may start heading for the exit as well.