Free markets prove right once again
United Kingdom’s trade deficit increased in May from 11.3 billion pounds to 12.7 billion pounds due to an export decrease of 2.8% and import increase of 1.6% according to British office for National Statistics.
For context, Britain is a compound of nations that produce certain goods and sells them in the open market while they buy other products from the same economic space. When a nation sells products abroad it’s called an export, when a country buys a foreign product it’s called an import. The so called trade balance is the sum of exports and imports.
The UK having a trade deficit means they import more than they export, and the gap is widening. This comes at great preoccupation among government officials.
The bad economic outlook comes after Brexit, a political referendum won –in the average- by British citizens in the third and fourth quarters of their lives with a below average income input. Brexit’s ultimate goal was to cut UK’s participation in the European Union space for a trade.
Brexit leaders argued that cutting the strong interdependence with European countries would create better conditions for the nation, first, as the immigrant would be forced to leave thus increasing the per capita GDP and second by leaving room for the British working class to regain control over their land. Brexit was supposed to increase the production of high-demanded products for export and cutting imports through local alternative production.
Investors panicked after Great Britain’s Brexit outcome was “yes”, as a country without strong connections to the world is perceived as volatile and dangerous. As the Brexit’s outcome was known, British Pound fell to its 1984 value. The new value of the British Pound is expected to remain lower than before.
A cheaper Pound is supposed to make the cost of producing a British good lower, this decrease in the production cost is supposed to create a more competitive export market. The thing UK’s officials didn’t think about is that leaving the Eurozone would increase raw material’s price, as favorable tariffs would not apply anymore.
As a result, the benefits of a cheaper British Pound are shaded and the benefits of Brexit will take longer to appear if they ever do so.
Latin American Post | David Eduardo Rodríguez Acevedo