While the Brexit vote to leave the EU sounded like a great option to the majority of voters, there is now some amount of concern as to what leaving the EU would mean in terms of the economy. That is to say, now that there is no Single Trade Agreement, will newly assessed taxes and tariffs affect imports and exports? According to analysts, taxes and tariffs will indeed have a huge impact on imports and exports, which in turn will affect not only Britain’s economy but many of the major markets around the world, the United States in particular. It will likely take tax auditors to analyze the amount of loss British companies are experiencing due to a devalued pound and higher taxes they will need to come to terms with as a result of broken trade relations with the EU.
First a Look at Major Forex Currencies
Before even thinking about import and export taxes, duties, tariffs and whatever else they decide to impose, it’s important to understand that the UK is one of the world’s leading economies. With the sharp fall of the pound just hours after the Brexit vote was in to leave the EU last June, the US dollar rose significantly against the GBP and while that, at the time, seemed like a great thing in the United States, it actually will work against them in the long term.
How a Devalued Pound Will Create Higher Taxes
Not only will leaving the EU create import and export taxes and stamp duties between the Eurozone and the UK, taxes will necessarily need to rise on imports and exports with other trade partners such as the US. The reason for this is in how much more the UK will be paying for parts and supplies being imported from the EU, which drive the cost up and in order to recover lost revenue, the nation will need to impose higher taxes and duties. Another way of looking at it is from the perspective of the GDP.
Until Brexit, the EU was Britain’s largest trade partner and due to the Free Trade Agreement, there were no import and export duties in trade. Upon leaving, all bets are off and it is yet to be determined how high those taxes, duties and tariffs will rise, but at the moment, unless some sort of Free Trade Agreement such as that between the EU and Switzerland can be negotiated, that rise will be quite high.
Higher Taxes Will Affect the Economy at Home with Even Larger Global Implications
As mentioned earlier, the UK has historically been one of the globe’s leading economies. If forced to pay higher import taxes on parts and supplies traditionally obtained from the EU, the cost at home on anything manufactured with those parts will be driven up significantly. This, in turn, will further weaken the pound which is already at a 30-year low, giving it less buying power in other major markets. Fewer imports will be purchased, from the United States as an example, which will further weaken their economy that is precarious since bouncing back from the recession and with new administration causing market concern.
So how will Brexit affect taxes on imports and exports? The simple answer is that there will now be taxes on trade with the EU which will lower profits for both the UK and the EU. With weakening currencies, both will be forced to reduce trade globally and the impact can have a major impact around the world, but most especially with major trade partners and major currencies. It can only be hoped that an agreement like that which the Swiss now enjoy can be reached so that trade will continue unobstructed by high taxes and the UK economy will not bottom out as a result. Until plans for a final Brexit are negotiated, it’s still a game of watch and wait.
