Brexit: the First Wave of Deglobalization

Jun 27 , 2016
   
   

Brexit, listed as one of the three biggest risks of 2016, became a reality on the 23rd of June when “the Leavers Camp” won by a small margin with 51.9% of the vote. Prime Minister David Cameron announced right after the referendum that he would resign before October Conservative Party’s Conference.

The referendum with an unprecedented voter turn-out of 72% has attracted the attention of the whole world, as its outcome will not only impact the future of the UK, but also bring about huge and unpredictable changes to the European integration process as well as to the future of globalization.

From a strategic and global perspective, Brexit may be defined as the first wave of anti-globalization and rising populism that washes over the world, in particular the advanced nations. What follows next will certainly be more intense and ferocious as globalization and anti-globalization forces engage in fierce battles in different fields involving more countries both in and outside EU.

We have witnessed the unstoppable rise of Mr. Trump as the Republican candidate no matter what “politically incorrect” things he utters. It can be safely said that with Brexit becoming reality he will gain more appeal among “blue-collar Americans”.

Meanwhile, European countries like France, Greece, Spain, Demark and others see anti-EU forces gathering strength and their parties gaining more votes in domestic and EU elections. What is more, populist movements such as the French “standing in darkness” and the “movement of angry people” in Spain are spreading in ranks and influence. A successful Brexit will no doubt encourage such sentiments to grow. In sum, Europe and the US are experiencing a fundamental shift in social physiological framework and political eco-systems.

The polarization of political eco-systems in Western nations has produced and will continue to have a huge impact on the globalization process, world politics and economics. Even though the world had been forewarned by the referendum in UK, the outcome still brought about unprecedented consequences. Global bourses suffered a collective “Black Friday” crash with the British stock market down 8% and Dow Jones dropping 700 points. The Japanese stock index was hit most severely with a historic drop of 7.9% triggering “a fuse break”. Needless to say the British pound suffered, with a 10% slide versus the US dollar.

The above figures shows that we do live in a globalized world of common interest with financial as well as political risks transmitting superfast around the world with no exceptions as the lines among nations and between politics and economics become unrecognizably blurred. That is what is meant by “shepherd effect” or “butterfly effect”.

From the perspective of EU integration, the EU has been leading the world in global governance with its regional integration as a litmus test. But the EU and Euro-zone in particular has been hit hard by the debt crisis and resultant economic crisis testing the cohesion and viability of the EU and the euro. Most recently the EU has been flooded with refugees from Syria, Iraq and other war-ravaged countries in the Arab world, further straining the fabric of the EU as an example of globalization, especially the principle of freedom of movement of people. All these have stirred up anger and deep-rooted frustration among ordinary people in the EU, directed at governments and elites of those countries. Hence the rise of populist movements and extremely “right or left” parties representing populist sentiments.

These changes are not fleeting but something fundamental that have brought about rebalance in the domestic and EU-wide political landscape in favor of those anti-globalization and anti-EU forces.

Many experts believe that Brexit might trigger a domino-like chain reaction both within the EU and around the world. EU members such as Greece, France, Spain, Sweden and Denmark, which already have frictions with Brussels, might follow suit with Brexit and ask for their own referendum.

That is why right after the UK referendum Germany, France and other major EU countries urged the UK to start negotiation with EU as soon as possible for fear that it could spark other dissenting voices within EU. Once it swells into a tidal wave, the EU could be buffeted hard enough to cause disintegration. Of course it is now only a worrisome development, not yet a reality. Many British people are signing up for a second referendum trying to reverse the first one.

For the UK, Brexit certainly will weaken its position in the world as well as its “special relationship” with the US, even though it will retain its permanent membership in the UN Security Council and the pound sterling will continue to be one of the global reserve currencies.

Scotland announced its intention to hold another referendum on independence immediately after the UK referendum. Northern Ireland with its traditional friction with England could follow the example of Scotland too. Again this is not a certainty but more an educated guess. Should it happen the UK might be part of history! Needless to say, we have to wait another 2-3 years before anything really takes place because negotiations for Brexit will be long and difficult in a tedious and complex process.

Finally, how will Brexit impact China both in terms of its relations with the UK and with the EU?
We need be cool-headed about it. Chinese government has taken the position of respecting the choice of the British people whatever they decide.

Short-term impact is the rippling effect from global financial market turbulences caused by Brexit referendum. China’s stock market and RMB exchange rate both took a hit. That is expected, no big surprise.

From medium to long term, it is still unclear to what extent China’s trade with and investments in EU will be affected negatively. Another uncertainty is the internationalization of the RMB as China has made London one of the clearing places for overseas RMB.

From all I can see, despite some temporary dip in the price of the pound sterling and UK economic growth, long term prospects for the UK and the EU will not change much. We should not overly worry and overreact to the Brexit referendum. Globalization will continue. The EU will continue to function and move ahead with political and economic integration. What should be watched carefully is the rising tide of populism in advanced nations and its impact on global political eco-system.

  
   
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