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Brexit Ushers in An Era of Uncertainty

Jun 26 , 2016
  • Zhang Bei

    Assistant Research Fellow, China Institute of International Studies

In one of the most momentous decisions in the country’s postwar history, a majority of Britons chose to end a marriage of 43 years and chart their own course outside the European Union.

The outcome was unexpected for many observers. After all, in the campaign running up to the referendum, the Brexiteers had been completely defensive on the economic argument, and numerous analyses suggested that Brexit would surely be a leap into darkness. However, voters were clearly overwhelmed by other issues at hand. Alleged swarms of migrants from Eastern Europe and long simmering disdain for the big and bureaucratic EU institutions played a role in their decision to vote “leave”.

It was an earthquake in British politics. Prime Minister David Cameron has admitted defeat and said he’ll resign before the Party conference. The rising career of his ally Chancellor Osborne is also believed to have come to an end. The next prime minister will be chosen from the Brexit or Eurosceptic camp, including Michael Gove, Boris Johnson and Teresa May. The anti-immigrant and anti-EU Independence Party would accrue more political capital out of the “leave” result, and the Labor party, which proved helpless and ineffective during the campaign, looks increasingly out of touch.

The United Kingdom’s long-term existence is under threat. In the referendum, 62% of Scottish voted to stay in the EU, speaking once again of Scotland’s pro-EU character and marking a stark contrast with a generally Brexit-leaning England. In the context of Brexit, and with the Scottish National Party still being the biggest party in the devolved Scottish parliament, a second Scottish independence referendum cannot be ruled out. The same scenario might also happen to Northern Ireland.

The economic future of Britain looks shaky, and much will depend on the ensuing negotiations between Britain and EU about the post-exit settlement. It is still uncertain when Article 50 the withdrawal clause of the Lisbon Treaty will be initiated, but once started Britain only has two years to settle the various “divorce” proceedings with the EU. It is widely speculated that Britain might adopt the FTA model with the EU, as the EEA model might not be politically acceptable for Brexiteers. In that context, Britain might have freedom in its own market and financial regulation, limited access to the European Single Market and zero influence in EU decision-making on various regulations. This will inevitably hamper British exports to the EU and weaken the role of City of London as a global financial center. Britain would also have to negotiate by itself bilateral trade and investment deals with countries around the globe, which would not be an easy job.

The impact of Brexit on Britain’s global standing and EU’s future development will take years to manifest, but the damage is already done. The EU has long served as a magnifier of the UK’s role in the world. It is hard to imagine how the UK would punch above its weight in today’s world, even for a nation that boasts of past world hegemon status, unrivalled experience in global engagement and remaining hard power. The exit of a major member would leave EU diminished and confused. It is still too early to say Brexit would trigger a domino effect, but it would be a huge encouragement to restless Eurosceptic forces on the continent. Both Schengen area and the Euro, EU’s two prize projects, are in constant crisis. The geopolitical tension with Russia to the east is not diffused and the threat from ISIL is acute in European cities. It remains to be seen whether the Brexit is an opportunity for the EU to pull itself up to face the multiple challenges or the last straw for an exhausted and over-reached colossus.

Brexit will inevitably deal a blow to the UK’s traditional relationship with the US. Historical and cultural bonds, military cooperation, intelligence sharing and UK’s role in EU are the major elements that prop up the special relationship. The result of UK’s referendum might shake the foundation as the “hard” elements are melting. UK has always benefited from its access both to US intelligence and other European countries. In the aftermath of UK’s exit from the EU, the US might court Germany or France for more intelligence sharing and military cooperation. London may no longer have the capability to whip the EU to back US on issues ranging from sanctions on Russia and efforts in the Middle East. A diminished Britain after Brexit might need ever more the support of the US, but what it could offer in return is a big question.

Brexit also cast a lot of uncertainties on China-UK and China-EU relations. The past few years have witnessed growing Chinese investments in the UK. After Brexit, the business and investment environment in the UK would be completely different. Business that favors UK as a springboard to the EU market would have to relocate their assets. Meanwhile, the economic uncertainties about UK’s future will also have a bearing on Chinese investors. China has used the City of London as an important platform to launch its RMB internationalization efforts. With the status of London in question, China would have to reconsider its plan. In China’s perception of EU governance, Britain along with Germany and France are the traditional Big Three. China values the UK as an advocate for trade liberalism, for its relatively open attitudes on many issues concerning China, such as China’s Market Economy Status and China-EU Bilateral Investment Treaty negotiations. After Brexit, it will also take a while for China to adapt to the new reality— that it cannot count on the support of the UK in its dealings with the EU.

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