Brexit: Why Both 'Leave' and 'Stay' Need to Relax

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During World War I England's Royal Navy imposed a blockade on Germany in hopes of frustrating trade between Germany and the U.S. U.S. exports to Germany subsequently plummeted, but out of nowhere they soared to Sweden and other Scandinavian countries. Trade between the U.S. and Germany continued; albeit via the Scandinavian countries.

Fast forward to the 1970s, and the non-Arab OPEC countries imposed an oil "embargo" on the United States. Oil spiked for unrelated reasons (commodities were then, and are now priced in dollars, and the dollar was in freefall), but imports of oil into the U.S. actually increased after the "embargo." What explains this seeming oddity? While some OPEC members chose to not sell oil directly to the U.S., they couldn't control the final destination of the oil sold to those they were selling to. If we're producing, we're ultimately trading with one another regardless of sanctions, blockades, wholly symbolic embargoes, and yes, country unions.

The above examples are worth mentioning in light of all the hysteria on the "stay" side about the looming "Brexit" vote. Assuming UK voters choose to leave the European Union (EU), it's not as though trade between individuals in EU countries and the UK will suddenly come to a halt. Trade is the purpose of our work, and as England is one of the world's most prosperous countries, it's folly for anyone to suggest that EU-based producers won't continue to fight for market share there. Just the same, the EU is similarly prosperous and will remain an attractive market for UK businesses.

Considering investment, a New York Times article from yesterday suggested a slowdown in IPOs related to uncertainty about the Brexit vote. This is one of those instances in which correlation is likely not causation. The U.S. is not part of the EU, but the rate of IPOs has similarly declined here too. Any number of factors could be driving the IPO slowdown in Europe. What's unlikely is that uncertainty about Brexit has anything to do with it.

That is so because just as trade between the UK and EU will continue regardless of Thursday's outcome, so will investment flows continue un-disturbed. The U.S. isn't part of the EU, nor is its currency the pound or the euro, but investment flows from the UK into the U.S. are greater than that of any other foreign country. Investment migrates to where it's treated well, and that won't change if UK voters opt to leave the EU. The UK and EU will still be attractive investment destinations no matter the June 23 vote, and because they will be it's safe to say that investment between the divorcees isn't about to end.

More broadly, London will remain one of the world's principle financial centers no matter what happens on Thursday. Since it will, UK investment banks and investment bankers will continue to service existing and future businesses in the EU. It's not as though top EU-based business will shun City financial expertise based on a vote.

Will some businesses be disrupted by an exit? No doubt. There are surely consultants in the UK whose earnings are a function of helping British firms navigate EU regulations, and there are surely lobbyists who are compensated based on their ability to influence what happens in Brussels. Those kinds of facilitator companies might be lightly disrupted, but then it's not the job of UK voters to prop up what is artificial. Beyond that, Brexit in no way means exit from all the EU rules for UK businesses who want to continue serving the continent.

Thinking about the above, one of the main drivers of the "leave" side's passion is a desire to escape the growing regulatory apparatus in Brussels. An exit from the EU to some degree means an end to all the rules foisted on the UK by the European Union governing body. Good. Any vote in favor of shrinking governmental power is a good vote. Still, let's be reasonable here. It's not as though a decision to leave the EU signals a renewed passion among UK voters for a return to highly limited government sans excessive regulation. If only that were true. It's more realistic to guess that UK bureaucrats will eagerly fill in for their counterparts in Brussels, plus it's safe to say that UK businesses pursuing commerce in EU nations will be required to continue to abide the rules written in Brussels. Lobbyists and consultants can rest easy.

Another argument popular among the "leave" crowd is that exit from the EU means relief from the inflow of immigrants from EU nations. Up front, it should be said that immigration is the purest market signal of abundant economic health, but whatever one's opinion it's folly to assume Brexit means an end to immigrant inflows. Economic growth is the biggest lure for outsiders, so unless the UK economy implodes, foreigners will continue to find ways in. And then if some of the most ardent supporters of "leave" are correct about the UK shedding the EU's suffocating rules with no bureaucratic replacement, the economic result for the UK will be pretty grand. If so, a bigger number of immigrants will find their way to the UK.

Another popular argument among those in the "leave" crowd is that the euro, even though the UK is not part of the currency union, is itself dysfunctional. The view is that a single currency doesn't take into account the different economies and different economic policies of the various EU members. This might be the silliest argument of all. To believe it is to believe that the dollar has been a disastrous idea for much of the U.S.'s existence simply because states like West Virginia and Mississippi in no way resemble New York and California economically. What a laugh. A currency is a measure meant to facilitate trade and investment. Nothing else. If the euro has a problem it's one of a lack of stability in terms of value (the U.S. Treasury's ‘benign neglect' of the dollar isn't helping the euro's cause since all currencies are at least vaguely pegged to the dollar), not that Germany in no way (thankfully) resembles Greece economically.

What should UK voters do on Thursday? They should vote to leave. Anytime voters can reject government amounts to something good. But whatever Thursday's outcome, passionate partisans on both the "leave" and "stay" sides need to relax. No matter what happens on June 23rd, trade, investment and immigration between the UK and EU nations will continue undisturbed, and as though the vote didn't take place. Sadly too, government will remain large on the continent and in the UK. The passions on both sides of the "Brexit" vote are way overdone.


John Tamny is editor of RealClearMarkets, Director of the Center for Economic Freedom at FreedomWorks, and a senior economic adviser to Toreador Research and Trading ( He's the author of Who Needs the Fed? (Encounter Books, 2016), along with Popular Economics (Regnery, 2015).  His next book, set for release in May of 2018, is titled The End of Work (Regnery).  It chronicles the exciting explosion of remunerative jobs that don't feel at all like work.  

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