Taylor Swift’s album can’t be streamed (yet), and that’s the economically smart thing to do

Taylor Swift performs on her 'Speak Now' tour in Sydney, Australia, in March 2012.

Taylor Swift performs on her ‘Speak Now’ tour in Sydney, Australia, in March 2012. (Photo by Eva Rinaldi via Flickr under CC-BY SA 2.0 license).

Last week, Taylor Swift was responsible for one-third of all music sold or streamed in the United States. Her newest album, reputation, on its own sold nearly double the rest of the Billboard 200 combined. And despite releasing only four singles from the album on streaming services, Swift came to dominate those charts as well.

Swift’s choice to withhold access and force listeners to pay for her music has interesting implications for the streaming music industry, which remains unprofitable despite climbing numbers of paying subscribers. The latest numbers peg market-leader Spotify at 60 million subscribers, with second-place Apple Music coming in at 30 million. The growth of these services has been the primary driver of increasing revenue for record companies, whose U.S. revenues grew 11.4 percent in 2016 to reach $7.7 billion, according to industry association RIAA.

But that figure is still only about half of what it was in 1999, before early music streaming services like Napster entered the market, the RIAA said. As music became widely available online, consumers became less willing to pay for it, driving down revenues. The recent uptick in paid subscriptions has yet to make up for more than a decade of declines.

“We’re no longer running up a down escalator,” Warner Music CEO Stu Bergen told The Guardian, “but that doesn’t mean we can relax.”

The major challenge faced by both streaming services and the music industry is the popularity of YouTube, where songs are often available for free (legally or illegally) and revenues sent back to the music industry are miniscule. Spotify contributes an average of about $20 per user to the industry, according to The Guardian, while YouTube sends less than $1 its way. In 2016, that meant just $553 million in total revenue from YouTube compared to $3.9 billion from Spotify. Both these figures are far lower than comparable music sales revenue would be for the same number of listeners.

Throughout her career, Swift has taken a stance against making music widely available online, defending her copyright on YouTube and withholding her releases from streaming services. Her entire catalog was only available to stream for a few months in 2017, until reputation was released to buy but not to stream.

Swift wrote in 2014 that “music is art, and art is important and rare. Important, rare things are valuable. Valuable things should be paid for.”

Free or subscription music can be great for consumers, but it prevents sellers in the marketplace from gauging how much someone values an artist’s creation. In economic terms, Swift’s choice to temporarily withhold her latest album from streaming services and allow interested customers to pay for access enables a kind of price discrimination that can increase efficiency and better match supply and demand. As John Paul Titlow of Fast Company explained:

Many of the people who care most about her music felt compelled to do something that seems rare these days: They bought the album. Others, like me, did nothing.

[…]

And to be sure, many of the diehards who bought a physical copy of Reputation will likely add it to their streaming libraries as well. But by then, Swift will have already smartly extracted maximum value out of the people who care the most. And why shouldn’t she?

Fine Art Auction Sales Reflect Confidence in the Economy

Fine art is a status symbol, both in societal terms and economic terms. The uber-wealthy pull out their wallets at art auctions hosted by Christie’s and Sotheby’s every year and contest for collectable pieces by the world’s greatest artists. The prices naturally fluctuate with the ebbs and flows of the global economy so when buyers up the ante, those price tags can be used as a gauge for confidence in the market. The more money people have, the more likely they will spend it. According to the Washington Post, Christie’s auction house set a record this year by auctioning off the most expensive painting in history. Leonardo da Vinci’s, “Saviour of the World” (Salvador Mundi) was auctioned off for an astounding $450,312,500, shattering the previous record by over $270 million dollars. Spending that kind of money on a collector’s item is a direct result of the economy as a whole and the conviction the wealthy have in it.

Economic indicators come in many forms, but art is one that could be considered unorthodox given only the wealthiest of society participate. Art auctions like Christie’s is an interesting way to look at the health of the economy. Price tags like the one on Leonardo da Vinci’s painting are not small and the growing economy allows for pieces like that to go for hundreds of millions of dollars. Fortune magazine examines the art auction market a little deeper saying “robust sales are a sign the world’s wealthiest people feel bullish—making a recovering art market something that point-one-percenters and the other 99.9% can be equally excited about.” The art industry as a whole has been in a slump since 2015 so the numbers being reflected in this year’s auctions are a good sign for the industry and the shareholders of the auction houses. Confidence in the buyers also creates confidence in the sellers. That confidence stems from a myriad of elements including a sky-high Dow Jones, planned tax cuts from the Trump administration and other indicators that signifying a robust marketplace.
According to the New York Times, the tax cuts also include a provision that restricts “high-end art investors to sell works and quickly replace them with pieces of similar value and [thus] defer paying federal taxes.” If passed, this loophole in the system could potentially halt liquidity in the U.S. market to some extent because people will sell less and not have as much money to spend. With that being said, the current art market is sitting pretty at $60 billion, but is mostly made up of pieces that go for $1 or $2 million, unlike da Vinci’s piece, with buyers who hope to use those “smaller” purchases as an investment that they can gain profit on by resale down the road. The fact that material objects can generate this much revenue is surprising in a time where people are starting to value experiences more and more in society. Although it is not the strongest indicator, the confidence in the art market is very telling in a macro-economic sense. It will be interesting to see how long the confidence remains and if the economy really starts to reflect the experience-leaning consumerist shift or if fine art will continue to be as expensive. In the art world, some of the wealthiest people in the world invest in timeless pieces of art that also help excite a market that only the 1% can participate in. Fine art as an economic indicator is one that you will only see thriving when the economy is hot, and thriving to the extent where a few hundred million dollars is spent on a single work of art. That is not chump change, so when that kind of money is used to purchase a collector’s item, it is easy to assume that the economy is doing well and expected to do so for the near future.

Impact of Holiday Travel on the Economy

Travel is frequently an indicator of the health of the economy. It is often viewed as a luxury or an unnecessary expense and when times are tough, people generally sacrifice their travel to have some extra cash for other expenditures. However, with lower travel costs combined with a growing economy, travel may be placed higher on families’ priority lists. With the holiday season quickly approaching, travel is expected to increase dramatically for the remainder of 2017.

This year, AAA expects nearly 51 million Americans to travel 50 miles or more away from their home for Thanksgiving alone. This number is the highest volume of travelers since 2005 and is a 3.3% increase over last year’s travel numbers.While gas prices generally dip prior to Thanksgiving, this year the prices have continued to rise as the oil and gas industry still works on normalizing post-hurricanes. Even with the increased prices at the pump (as they hit the highest Thanksgiving period prices since 2014) travelers are willing to pay a bit more to visit family and friends for the holiday. Americans are expected to spend $800 million more on fuel for holiday travel this year compared to last year. In South Carolina alone, the price of gasoline is 32.5 cents higher per gallon this year than it was last year at the same time.

While the price of traveling by car has increased this year, the price of travel by air isn’t inexpensive either. The average cost of a Thanksgiving flight is $385 if booked by the end of October. The most congested cities for Thanksgiving travel are expected to be Los Angeles, New York, San Francisco, Atlanta and Miami.

Regardless of the high gas prices, projected travel numbers remain higher than they have been in years. AAA’s senior vice president, Bill Sutherland, credits the strong year for the travel industry to a strong economy and labor market that has fueled higher incomes and consumer confidence.

With this massive increase in holiday travel and spending in 2017, the country’s economy as a whole is bound to reap the rewards as well. The World Travel & Tourism Council noted that travel and tourism directly contributed to GDP growth by 3.1% in 2016. This growth was faster than the economy as a whole, which grew at 2.5% the same year.In addition to GDP growth, travel and tourism contributed to employment growth of 1.8% in 2016, which totals almost 2 million jobs. Looking ahead to 2017, travel and tourism’s contribution to the economy’s GDP is expected to grow even more by 3.5%. Much of that growth will more than likely come from this year’s holiday travel numbers.

What would be the potential impacts as China is banning American trash imports?

On July 18, China claimed that it would stop taking foreign shipments of waste goods, such as plastic and paper, from foreign countries.According to a Reuters report, China wrote in a statement to WTO that “to protect China’s environmental interests and people’s health, we urgently adjust the imported solid wastes list, and forbid the import of solid wastes that are highly polluted.”

An BloombergView article said China has practiced imports of trash for more than 30 years, and it is a significant contributor to the rise of the Chinese economy. The Chinese environmental authorities estimate that more than 5,000 tons of garbage imported every year. The CNN Money calls it “a $5 billion annual business that is now in danger of sinking.” However, this is not a new trend. In 2013, the Chinese government launched “Operation Green Fence” Program to block imports of illegal and low-quality waste through improved inspections of container ships. In February 2017, Chinese customs officials initiated “National Sword” program to reduce illegal shipments of industrial and electronic waste. According to Resource Recycling Inc, in 2013, it costs about $2,100 per container that was rejected by China and shipped back to Los Angeles/Long Beach port.

The idea of shipping trash to China originates the balance of trading and maybe also the thought that the United States should not let empty ships going back China. Thus, America fills the return-trip containers with recycled cardboard boxes, waste paper and other trashes. The Economist said it is a double-win solution. It said America can earn a return from their waste, while China can have a constant supply of cheap recycled materials.

However, the issue is the quality of trash.

“We found that large amounts of dirty wastes or even hazardous wastes are mixed in the solid waste that can be used as raw materials. This polluted China’s environment seriously,” China’s WTO filing said. The Chinese government criticized Americans for not separating trashes ahead , and the Chinese government said failing to handle trash separation in the United States increases pollution in China.

On the other side, the critics said most of the waste consumed by China’s recycling industry comes from domestic sources, not imports. Adam Minter, the author of “Junkyard Planet”, wrote in an article on BloombergView this July to argue that China’s government has long played up stories about foreign waste, partly to deflect attention from unmanageable garbage problems at home.

Who will be the loser in this trash ban? The answer is everyone, including China, America, the environment, and global economy.

It is for sure not a good news for Americans. Jeff Harwood, an Olympia-area recycling center manager in Washington,  tells Washington state’s KIRO-TV in 2013 that the problem is American does not have market for recycling goods. It is still true today. Minter claims that “on average roughly one-third of the stuff that’s tossed into U.S. recycling bins can’t be made into new products domestically.” Moreover, Winter wrote in his book that in Foshan, China, the salary of a recycling worker is 100 dollar per month plus rooms and boards. The cost of recycling process would be much more expensive in America. He also claimed that it is cheaper to ship trashes from America to China than to transport them from Los Angeles to Chicago through railway.

It also has potential to hurt Chinese economy. For China, The trade of trash imports is a more than half of the $1 billion a year business to recycling industry. Although China today is not as eager to recycling materials as it was decades ago, the ban still will drastically decreases the demand. Minter wrote in July that imported recyclables are cleaner than their Chinese counterparts, and banning them will force many Chinese recyclers to shut down and thousands of workers losing jobs. Moreover, recycling materials imported from America is also much cheaper than the ones in China. As the Chinese economy still heavily rely on manufacture, the ban might also causes the rise of goods.

The ban might could not even protect the environment or improve the public health. As China bans its trash imports, its 29 million tons of paper and 7 million tons plastic scrap still need to find place to go. They might end with landfill that does not have effective recycling ability as China has.

At the last, the ban will also affects the price of paper and plastic globally. It would be “chaotic for the global recycling industry,” said Bill Moore of Moore & Associates, an Atlanta-based paper recycling consultant.

“Mixed paper prices would plummet in the U.S., North America and in Western Europe because all the mixed paper we’re pumping out in residential [programs] would have no home,” Moore explained. “So that would be chaotic at the local government level, at the MRF level, at the collector level. It would be complete disruption.”

 

China Decides To Take Out The Trash, but At What Cost?

The world has a lot of recyclables, especially Americans. When I say a lot, I mean billions worth. According to Bloomberg, “by the mid-2000s, scrap paper was among the leading U.S. exports to China by volume.” China has been the largest importer of the world’s recycled goods for some time now as a result of the hunger it’s manufacturing boom caused. In order to feed the consumerist beast of The United States and others, China needs the scrap to keep up without breaking its bank. It is cheaper for China to import recycled scrap as opposed to making steel, paper, cardboard, etc. on their own so it seems like a win-win for the country. In July of 2017, China’s government announced it will stop eating up a majority of the world’s recyclables and will no longer be the world’s recycling bin. The government made this decision due to environmental concerns. Reuters reported that China told the World Trade Organization that in order “to protect China’s environmental interests and people’s health, we urgently adjust the imported solid wastes list, and forbid the import of solid wastes that are highly polluted.”

The environmental concerns are outweighing the trade benefits for China and they have for some time time now. In 2013, according to The Economist, the Chinese government launched Operation Green Fence to try and lessen the amount of foreign, low-quality waste from entering the country. This new announcement by the Chinese government is proposing to cut off a majority of recyclable imports for the sake of the environment. China is facing a $5 billion loss in trade with this proposal according to a report by The Economist. As of 2016, Reuters stated that China imported $3.7 billion worth of waste. This decision to choke scrap imports will rattle the global economy significantly.

Not only will China be heavily affected, but the United States will be too. Exporting waste takes work and work means more American jobs. Bloomberg reported that 40,000 Americans have jobs due to the exportation of recyclables. When China blocks the trading of trash, about 40,000 Americans will be left without a job and the American landfills will fill back up. The cost is significant as well. There could be a trickle-down effect here into individual American homes as well. If it begins to cost too much for smaller recycling companies, or even some larger ones to pay for more workers or equipment, this could mean the separation of waste could fall directly on the individual. The loss of this huge benefit to the trade deficit between China and the United States will leave many cargo ships empty of exports to take back to China.

With that being said, the recycling market will remain afloat, but domestically and at a smaller scale. According to Dylan de Thomas, vice president of industry collaboration for the Recycling Partnership, “the really large waste and recycling companies have a vested interest in the recycled fiber and plastic markets.” Not only large companies, but the general public in the United States has a vested interest in recycling as well. Due to America’s own concern for the environment, we may only see a small effect on the American economy as whole, but only time will tell if the United States can pick up where China left off or have to figure out a new strategy.

 

The Unbalanced Pyramid: The Illicit Economy Behind China’s Lifting of One-Child Policy

Heralded as a powerhouse to propel the world into the future, China has long been regarded as having one of the most sound demographics to power its economy. Recently, the country has announced that it is lifting the controversial one-child policy, which has been in place since 1979 as a means to control the population at a time when China was still poor and undeveloped. However, remnant effects are being felt by the country in 21st century, in the form of a destabilized demographic.

What would happen when your family is told that you are only allowed one child, and in some cases at most one son after having a daughter, in a country where sons are traditionally viewed as being more virtuous than daughters?

(An old propaganda poster supporting One-Child Policy: “Executing the One-Child Policy Is A Part of the Country’s Foundamental Principles.”)

 

Some simple math will tell us that male babies born will outnumber the female ones, and this is exactly the problem Chinese Millennials and Gen Zs face as they approach adulthood. In his article, BC Cook outlined the threats he thinks the Chinese society faces as a result of the One-Child Policy. The most pronounced issue, he argues, is the problem of “online brides”, or brides from neighboring Asian countries who come over to be married to Chinese single men who cannot find a wife.

Now, online dating is not illegal, not even in China. “However,” Cook argues, “Chinese men finding foreign brides and starting families is exactly what the Chinese government was trying to avoid. So the one-child, male-only mandate from the government has backfired.”

On one hand, there is a markedly obvious imbalance in the “supply and demand” of domestic brides, as a direct result of the One-Child Policy. On the other, the Chinese philosopher Mengzi summarized in a proverb: “Dishonor to the family has three forms, and having no child is of the worst.”(不孝有三,无后为大)The Chinese traditional culture heavily focuses on the idea of continuing one’s lineage by starting one’s own family. To this day, this idea still permeates all levels of Chinese society. Where demand exists supply must be sought, and in this case, in the form of online brides from Thailand, Vietnam, Laos, Cambodia, etc.

(“It sure would be nice to have a sibling, Mr. Xi!”)

Disregarding the ethical arguments, this aspect of the One-Child Policy’s remnant effects certainly has created social-political implications where the imbalance of a very sensitive supply-and-demand relationship sought balance elsewhere. “There is a limit to how much we can legislate human behavior,” summarized Cook, articulating his belief that the Chinese government has disrupted an instinctive economy of basic human needs.

It is very unlikely that the Chinese government will step in to regulate the online dating industry as a result, because online dating has created an in-demand economy across China. Still, the influx of foreign brides, many of whom are still undocumented, has most definitely created implications for the government.

Not only does supply create its own demand. Demand creates supply where necessary, too.

Trump’s Trade (Partial)Truth

I’ve trained myself to automatically assume that everything Donald Trump says is incorrect. It mitigates frustration and utter disbelief. It prioritizes my sanity. Most importantly, it causes me great surprise when he says something that is anything remotely near true. With Trump as our president, I keep Snopes bookmarked in my favorites bar.

One of Trump’s favorite hot topics is China. He called global warming a hoax created by China. He accused the U.S. of becoming at third-world country at the hands of China. He even tweeted that China did “NOTHING” to help the U.S. stop North Korea from creating nuclear weapons.

No matter how much I hate to admit it, though, President Trump’s take on trade with China does have an inkling of truth. In his 2017 Inaugural Address, he said:

“We’ve made other countries rich while the wealth, strength and confidence of our country has dissipated over the horizon. One by one, the factories shuttered and left our shores with not even a thought about the millions and millions of American workers that were left behind.”

While this is an extreme exaggeration, we should be careful not to brush it off as quickly as we do his take on global warming.

China, by all means, is a global powerhouse. However, it wasn’t always that way. For years and years, communist China had a downward-spiriling economy. But between 1991 and 2013, China’s exports increased from 2% of the world’s total to almost 20% (Freakonomics). The country transformed into a leading producer as a result of its plentitude of resources available and more importantly, its cheap labor. China was able to do this so quickly because of its sheer size and the massive potential amount of slack it had to pick up.

In the 1990’s, the Ports of Los Angeles and Long Beach exploded in use due to China’s manufacturing transformation. The two ports combined currently do the most trade in the U.S. (Port of LA Communications). Jobs in shipping–working at the port, sorting, on trains, etc–all either kept or exceeded their current demand. The one part of the labor market that fell apart was manufacturing.

Globalization, trade amongst foreign countries, raises the GDP of the countries at stake. This is not without adverse distributional consequences, though. And one of its biggest dilemmas is labor.

China’s rapid production development is one of the best things to have happened to the U.S. middle class. Chinese workers are employed and producing items to be exported to other countries. People in the U.S. are happy because everything they buy is so much cheaper, thanks to the low financial cost of labor in China and the super low cost of streamlined shipping thanks to the invention of TEUs (Gabriel Kahn). The net effect of the U.S.-China trade relationship is good.

The loser is the manufacturing labor market, a potential reason for why we are currently living in a country with Donald Trump serving as president. With China producing things at such low costs, the need for low-skilled or unskilled manufacturing jobs in the United Stated became virtually nonexistent. Manufacturing workers were laid off in the masses, and plants closed throughout America. From 2000-2007, one million U.S. manufacturing jobs disappeared, 40% of which was attributable to China’s newfound success (Autor). Highly-skilled U.S. workers were just fine, but those who were educated at that level lost their work to cheap Chinese labor.

Those low-skilled manufacturing workers were now out of work and needed to costlessly reallocate to their next best opportunity. This was not easy to do because for the most part because their adaptation skills were poor, making reallocations unsuccessful. This had adverse effects on other labor markets, which served the manufacturing plants that went out of business. The wages of manufacturing jobs that did still exist were lowered because of the low cost of Chinese labor. Public transfer benefits such as medicare, medicaid, food stamps, etc., became more widely used because low-skilled workers were out of work, and their skills levels made it hard for them to reallocate without any costs.

China’s transformation into a country of mass exports adversely created job loss, wage depression, and increase in welfare spending for a particular portion of the United States: manufacturing workers who aren’t highly skilled. The growth of China into a powerhouse nation was as a majority a global good. However, much to Trump’s and my dismay, it also fully disrupted a U.S. labor market–manufacturing–for the worse.

The Dream of Being a Longshoreman

The Port of Los Angeles is the largest port in the United States. In 2016, 2,050 ships brought $272 billion worth of cargo to Los Angeles. The Port of LA is a crucial piece of importing manufactured goods from China.

A critical piece of this massive operation is the longshoremen, the workers who handle the loading and unloading of the ships in the port. The longshoremen and their union are so critical to port and its trade that they have the power to disrupt an entire supply chain. In 2002, during contract negotiations, the union essentially shut down the west coast ports as a leverage in their negotiation. This caused disruptions not only on the west coast but across the country where goods couldn’t be delivered and across the Pacific where the goods are made. This relatively small union has immense power over the import of goods in the United States.

Longshoreman jobs are coveted. Longshoreman can make more than $100,000 a year and receive free health care, but it is not easy to become a longshoreman. In order to get this dream of a blue collar job paying over $100k, you have to get into the dockworkers union, the Pacific Maritime Association (PMA).

The first step to becoming a fully-fledged member of the union is winning the lottery. In order to get in the union, you have to become a “casual” worker. Casual workers do the same work as union longshoremen for less pay and benefits. To become a casual part-time worker you have to win a literal lottery. The longshoreman union held the first lottery, since 2004, for casual worker spots. This year 80,000 people entered the drawing and only 2,300 will be eligible for part dock work. They all entered with the dream of having the modern day unicorn, a high paying blue collar job. Just because they won the lottery, they aren’t guaranteed elevation to be a full union member.

TraPac Automated Terminal

As the Port of LA and other west coast ports become more automated, the number of dockworker jobs available will not go up. But they also will not go away entirely. Even in the automated terminals at the Port of LA, PAC, humans still have the operate the massive cranes that lift the containers off the ships. The need for the dockworkers will not go away, the demand will just decrease.

The longshoremen in Los Angeles are at the front of the globalized economy acting as gatekeepers of trade. They also have a what can feel like is missing in this globalized world, a well paying middle-class job.

 

Sources: 

http://www.latimes.com/business/la-fi-dockworker-pay-20150301-story.html

http://www.latimes.com/business/la-fi-port-lottery-20170127-htmlstory.html

http://www.dailybreeze.com/2017/06/02/longshoreman-lottery-results-announced-for-long-beach-la-ports-find-out-if-youre-on-the-list/

http://www.scpr.org/news/2017/06/05/72573/why-80k-people-applied-for-2-400-positions-at-la-s/

Climate change’s economic impact examined in new report

Climate change is not a concept accepted by everyone and certainly, not by President Donald Trump. But according to a recent study from a team of researchers for The Lancet, years of inaction battling climate issues negatively affected the economy and will continue to do so.

Data points to a massive sum of money spent due to the devastation caused by major weather events, like hurricanes and wildfires. An increase in natural disasters has been directly associated with the deteriorating climate.

“Between 2000-2016, there has been a 46 percent increase in the number of weather-related disasters,” the report stated.“Economic losses linked to climate-related extreme weather events were estimated at $129 billion in 2016.”

 

Those numbers represent 2016, not the even wilder hurricane season in 2017, which saw the damage of Hurricane Harvey and Hurricane Irma, both record-breaking storms, likely costing more than $200 billion all together.

That price tag seems high, but it might be lower than it is officially tallied at, considering the cost of damage can continue to rise months following an event.  Below is a graph detailing the change in unemployment when Hurricane Katrina hit in 2005. Even by June 2006, while the New Orleans employment sum had regained some of its losses, it was not near its previous stable condition.

Therefore, if you assume that costly hurricanes will be prevalent over the next decade or so due to climate change worsened by fossil fuels, then the economy will continue to have problems. Extreme weather has cost the U.S. economy an average of $240 billion per year, and now that total seems to be on the low end for what the future holds.

Sir Robert Watson, coauthor and director at the U.K’s Tyndall Center for Climate Change Research, told National Geographic that natural disasters are not created by climate change, but noted the “intensity and frequency” of such occurrences have been made worse by hotter temperatures.

Obviously, fighting climate change to handle extreme weather starts with the knowledge that clean energy is necessary to adapt as soon and as quickly as possible.

But President Trump and EPA head Scott Pruitt don’t see a need for reducing risk, as the administration hopes to roll back Barack Obama’s standards on curbing carbon emissions in favor of coal production.

The coal industry, however, doesn’t seem like its making a comeback, which means it’s time to favor the environment by focusing on jobs created by renewable energy. These jobs are being created twice as fast as any other industry, via Quartz Media, and mainly include solar and wind installers. The solar industry itself generated roughly 260,000 jobs for Americans in 2016.

Eight of the 10 states where solar jobs grew the fastest voted for Trump in the 2016 presidential election, per CBS, and in Oklahoma, Alaska and Nebraska, solar energy workers grew by 100 percent from 2015 to 2016.

So it seems in four years, Trump won’t be able to single handedly destroy the environment. More people have come to understand the value of renewable energy, which is needed to slow climate change and protect our planet from volatile weather incidents.

Brexit Trade Implications: What Now?

Following the referendum held on Thursday, June 23, 2016 to decide whether the UK should leave or remain in the European Union, the entire world questioned what Britain’s exit from the EU would actually entail for British – and global – businesses. While there are many moving parts still up in the air, one thing is certain: Britain will have to reach a new trade agreement with the European Union. This task will be highly complex and be carried out under the immense pressure of a two-year deadline.

 

Once the United Kingdom’s formal decision to leave the European Union was notified to the European council of EU leaders, under article 50 of the Libson treaty, the UK was given a formal notice of leave from the EU. Article 50 demands a two-year timeframe for the UK to renegotiate a new legal basis for trade relationships with the remainder of the EU (however, it does enable an extension if needed).

 

The trade discussions must consider the framework for exporting and importing goods, like food and cars, two very important imports and exports for the UK, and the basis for continued services trade, such as legal advice on a big company takeover to and from the EU. Britain’s trade negotiations also must ponder changes to customs procedures, passport controls for business travel, and regulation on safety standards, health and environmental issues.

 

All the aforementioned decisions, however, are contingent upon whether or not Britain undergoes a “hard” or “soft” Brexit, said BBC News.  Hard and soft are terms that were used increasingly in  debates focused on the circumstances of the UK’s departure from the EU. While there is no concrete definition for either term, they are commonly used to refer to the closeness of the UK’s continued relationship with the EU following Brexit. On one end of the spectrum, a “hard” Brexit would entail the UK refusing to comprise on issues like the free movement of people, even if it meant leaving the single market. On the other extreme, a “soft” Brexit would more closely resemble Norway, which holds a single market (as opposed to a common market with free trade) and is forced to accept the free movement of people as a result.

 

According to The Guardian, it will be challenging for the UK to pull off a trade deal in a meager two years, particularly if the option of joining the European Economic Area (EEA) is pursued, but the British government is hesitant to accept any freedom of movement as a quid pro quo.

 

While the entire idea behind Brexit is to instill change within the British government and trade policies, John Forrest, the head of internal trade at DLA Piper law firm told The Guardian, he did not think having the UK continue carrying on trading with the EU under the same free movement principles is out of the question. “…that means freedom of movement for goods, people and capital between the UK and EU will continue to operate.” For the millions of people who campaigned and voted for leaving the EU on that Thursday in June of 2016, this possibility will be a tough pill to swallow.