On 23 June, British voters will go to the polls to decide whether the UK should remain in the European Union (EU) or leave it in a maneuver the press has termed “Brexit.” As of late April, public opinion polls showed the “remain” and “exit” sides running neck–and–neck, with a large share of the electorate still undecided.
The economic arguments for remaining in the EU are overwhelming. The fact that the polls are so close suggests that a substantial portion of the British electorate is being guided not by economic arguments, but by blind commitment to ideology. In this, the British are not so different from the many Americans who support the economy-killing presidential campaigns of Donald Trump and Bernie Sanders.
The main economic argument for remaining within the European Union is trade. The 28–member states of the EU constitute a single market, with free movement of goods, services, capital, and people. According to the UK government’s latest statistical release, nearly half of UK exports go to EU countries. Hence, a crucial question is what sort of relationship the UK would have with the EU if it decides to leave.
Supporters of Brexit argue that if Britain leaves the EU, it will be able to negotiate some sort of trade deal with its EU trading partners that would preserve the benefits of the single market. One option would be for Britain to negotiate entry into the European Economic Area (EEA), a group of non-EU European countries (e.g., Norway), which have negotiated access to the single market. Another option would be for Britain to negotiate a bilateral trade treaty with the European Union, much like Switzerland has done.
Concluding such an agreement is certainly possible, but it is unlikely that the EU would make a deal on terms that Britain would find as advantageous as full EU membership. After all, making it painless to leave the EU would encourage others to leave as well.
The UK Treasury released a report in mid-April analyzing the long-term consequences of leaving the EU, considering three alternative trading arrangements: (1) membership in EEA; (2) a negotiated bilateral trade arrangement; and (3) no particular agreement, but operating under World Trade Organization (WTO) rules which currently govern trade between countries that do not have a trade treaty. The Treasury’s analysis indicates that after 15 years, these three scenarios would leave the average British household worse off by an estimated annual £2600 (EEA scenario), £4300 (bilateral arrangement), or £6200 (WTO rules).
The trade-based argument in favor of remaining within the EU is powerful, and explains why it commands such widespread support among policy savvy individuals. The list of supporters for continued membership in the EU includes Prime Minister David Cameron, who was reelected last year with an increased majority (his Conservative Party, by contrast is split on the issue), the major opposition parties, including Labour, the Liberal Democrats, the Scottish Nationalists, and virtually all the minor opposition parties.
The Governor of the Bank of England, Mark Carney, has said that the threat of the UK leaving the EU is the “biggest domestic risk to financial stability.” And a Financial Times poll of 100-plus economists found that more than three quarters thought that leaving would hurt the British economy; only 8% thought it would help.
If Brexiters succeed in pushing the UK out of the EU, they will have shut an important door to the rest of the world and endangered Britain’s economic future.
Support for remaining in the EU comes from outside the UK as well. The leaders of Germany, France, Ireland, and Spain, among others, have strongly backed Britain’s continued membership. US President Barack Obama similarly encouraged a vote in favor of the EU during a late April visit to the UK, arguing that a separate UK– US bilateral trade deal (favored by the Brexiters) would take at least 10 years to negotiate and implement, leaving the UK out of the current US-EU free trade negotiations. And eight former US Treasury secretaries—Republicans and Democrats alike—warned that leaving the EU would lead to a “smaller, slower-growing British economy for years to come.”
What ammunition do the Brexiters have?
Brexiters complain about the burden of EU regulations. However, if the UK were to negotiate a Norway-style trade relationship with the EU, it would have to maintain many of the most costly regulations associated with EU membership. Brexiters also complain about the magnitude of Britain’s contribution to the EU budget. However, Britain’s net contribution of £6.5 billion is equivalent to less than 0.9% of the UK’s budget.
The most popular objection to continued EU membership is that Britain will be flooded by EU and non-EU immigrants, especially refugees. Here too, the economic argument is weak. Although Britain saw substantial net immigration last year, much of it from EU countries, the Conservative government has limited EU immigrants’ access to economic assistance, reducing any burden that they might place on British taxpayers. Further, foreign-born individuals in Britain are far more likely to have a college education than native born Brits, and so, in fact, are probably on average more productive than natives. As to concerns about non-EU immigrants, because the UK is not part of Europe’s passport-free Schengen area, Britain retains the right to stem any inflow of non-EU immigrants at its borders.
Brexiters’ objections to immigration sound very much like the scare-mongering over the arrival of foreign people that characterizes the Trump campaigns, and the scare-mongering over the arrival of foreign goods by the anti-trade Sanders campaign.
The US and UK economies are more prosperous when they are open to the rest of the world. If Brexiters succeed in pushing the UK out of the EU, they will have shut an important door to the rest of the world and endangered Britain’s economic future.
Featured image credit: European Union Flags 2 by Thijs ter Haar. CC-BY-2.0 via Flickr.