Will Brexit See A Resurgence In Mercantilism In The UK?

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The clamour of Britons as we drew near to the referendum was the need to “take our country back” from the ‘overlords’ in the EU. It was clear that the people (maybe not everyone) were dissatisfied by the way the EU was being run.

Whilst issues were raised about the terrorist attacks in Brussels and Paris which occurred around that time, there were also concerns about the incessant inflow of immigrants from war-torn Middle Eastern countries and Africa. Obviously, the strain on the economy, coupled with a crash in the value of the sterling, and the housing crisis meant the country had to take drastic measures to ensure its survival.

Another issue was raised about trade. Although the UK had not independently negotiated its trade deals since agreeing to become a part of the European Economic Community (the predecessor of European Union) in 1975, the lawmakers believed the country could get better trade deals.

While this thinking is not all bad, we can’t help but draw comparisons with previous events in history. In the 16th century, the idea of mercantilism was developed and was widely adopted by top European powers until its flaws were exposed by Adam Smith who argued that mutual growth could be achieved with free-trade systems.

Mercantilists believed a country can grow its economic strength at the expense of other countries by imposing heavy tariffs on importation while encouraging export of goods in order to boost its reserve. The model was to fosterlocal business ideas to produce what the country needs instead of importing.

A similar scenario is playing out in the UK. The kick against the free trade allowed by the EU pact is just one step towards mercantilism.

The warning signs are there for all to see. Indeed, there seemed to be aworrying lack of adequate preparation for the outcome of the Brexit referendum. Perhaps the result was not entirely expected, but still the lack of contingency plan threatens to jeopardize the economic recovery plan put in place since the economic crisis of 2007.

While we wait for Article 50 to be triggered, there remains a level of pessimism among the populace and economists. This is mainly because the UK has very little negotiating power when it comes to striking a trade agreement with the EU in the aftermath of Brexit.

With the EU vowing not to be intimidated and insisting on Britain accepting all ‘four freedoms’ despite the proposed UK/U.S. trade deal, uncertainty hangs over what the next step will be.

As Adam Smith pointed out centuries ago, there is much to gain from free trade. While both the UK and EU remain in this trade-off stance, a better approach will be to establish a common ground that works for both parties. This is especially crucial because the UK plays an integral part in Europe politics.

Since the mercantilism system mainly favoured the rich centuries ago while the poor majority had to suffer from the effects, a better resolution has to be arrived at by the leadership of the UK in order to protect the interests of the common man.