Brexit: Disaster or Opportunity for the West Midlands?

By Jason Metters & Samuel Beard

The economic and political focus of the last 18 months has been Brexit, mainly its long-term economic effects on the United Kingdom. The vote, which had been balloted on the 23^rd June 2016, left much of the country divided; and nowhere has this divide been most sharp than between the north and south of England.

What the long-term economic implications of Brexit will be on the United Kingdom is the question plaguing politicians, economists, businesses, and ordinary citizens alike. More specifically, however, what are the long-term implications to be within the West Midlands? In the region where 59% of those whom voted did so in favour of leaving the EU, there has been much speculation as to whether or not that region would be hit hardest by coming out of the union.

Figures released by the Treasury earlier this year, indicate that the sectors to be hit the hardest by Brexit will be operators within the manufacturing sector. Though more specifically, manufacturers operating within the automobile sector, which accounts for close to two thirds of total exports from the West Midlands. The total value of transport exports to the EU (2016) was £13 billion, or 47% of the total transport exports coming from the region.

Looking at these figures, it can quite clearly be deduced that the EU represent not only a major source of export revenue for the West Midlands, but also has a direct effect on the employment associated with this sector. According to data published by the Office of National Statistics, around 11% of those holding employment do so within the manufacturing sector.

North America and NAFTA

It is true that the EU is the West Midlands biggest trading partner, but that doesn’t mean other partners should be ignored. The North American continent represents the region’s second biggest export location, with exports worth £5.4 billion, 20% of the total £27.7 billion global exports of the region, coming from the West Midlands. A decrease in the number of exports made to the European Union, as a direct consequence of Brexit, could be off-set by an increase in the number of exports made to partners located in North America.

This is indeed the plan post-Brexit, to make up the deficit of, potential, lost trade with Europe, through other partners, such as those in North America. While it is still speculation and media hype, there have been thoughts to the UK actually joining NAFTA (North American Free Trade Agreement).

NAFTA is a free trade agreement between the United States, Canada, and Mexico, whereby all free states are able to trade good and services with lowered or eliminated tariffs. However, NAFTA also has a mandate for free movement among member states of labour and capital. While NAFTA would offer opportunity to enter into a market with an aggregate GDP of $20 Trillion (compared to the EU’s $16 Trillion – without the UK), it would also mean entering into a space where the aggregate population is larger than the EU – when deducting the UK’s population (487 compared to 442.36).

The North American Free Trade Agreement is exactly that, there is no real political, legal, or social integration. However, the EU started out as nothing more than a trading area, and it seems to be the case that integrated trading leads to integration of economies; with political and social integration thereafter (as a means of regulating the initial trade agreement). Indeed, NAFTA does already have some level of social and regulatory integration; many of which mirror the EU in its current state, such as freedom of movement.

When the primary focus of the Leave Campaign was freedom of movement, it is hard to imagine the UK swapping one union for another.

Nevertheless, the UK, or more specifically the West Midlands, has traded with North America without being in a quasi-political union with them (either directly or by extension of being part of the UK). Would it just be a matter of exporting more to North America, to make up the loss from the EU?

This seems the logical method; however, trade has two sides: demand and supply – simply supplying more to the North American market would not work. More to the point, it may actually have consequences (the need for lowered prices, and possible increased tariffs). To combat this, some level of international agreement must be in place (to avoid tariffs) and demand would need to be increased in the place of supply (most likely through marketing or individual sales agreements).

The Commonwealth

Another logical starting point for more international trade, is strengthening trading relations with countries that used to be a member of the British Empire, and who are subsequently a member of the Commonwealth. The Commonwealth represents territories and nations in numerous continents, not to mention just under 32% of the world’s population and a combined GDP of $14.6 Trillion.

With the ability to negotiate its own trade deals, once the details of Brexit have been finalised, the Commonwealth should be the first place the UK starts. The Commonwealth contains various emerging economies, most prominent among them India. The opportunity within this class of economy should not be ignored, and the UK’s historical ties with such places could represent an invaluable “in”.

A sign of an emerging economy is increased domestic car sales, between summer 2016 and 2017, the average increase in car sales within India was 14.8%. Currently, as stipulated by the European Trade Commission, all exports to India are subject to tariffs. When the UK can negotiate its own trading terms, the opportunity for car-makers based in the West Midlands, in places such as India, should be utilised.

Opportunity or Disaster

There has been much hysteria on both side of the Brexit divide as to whether leaving the EU will be beneficial or detrimental in the long-term – with both camps presenting powerful cases. While it is still too soon to say, there are a few realities, which need to be realised. The first of which is that Brexit is happening, regardless of personal/professional preference. The second is that the best must be taken from every situation.

Leaving the EU, as a full member, does not mean we will be without any kind of trading relationship with the Union in the long-term It will also mean the UK can re-position itself in the world economy; what’s more, it will also allow the West Midlands to re-position itself on the world economic stage. Even if that means finding new markets for its current goods and services; that, in itself, represents an opportunity.