While we Australians might feel we have enough to deal with when it comes to our own economy, the fortunes of our global trading partners is bound to have a ripple effect and hit us in our own pockets too. We need the rest of the world to buy our exports and come and spend money here as tourists.
With close cultural and historic ties, it’s only natural that we look to the UK too. While we might be looking forward to teaching the Poms a thing or two in the upcoming Ashes cricket series, their politics is a matter of concern.
Brexit vote sparked ‘carnage’ in Australia
Last summer, the UK voted to leave the European Union – with voters choosing to go for a ‘Brexit’ from their near-neighbours. The early signs for us in Australia weren’t great. ABC described the situation the day after the vote as ‘carnage’ as the dollar dropped and about $50 billion was wiped off the value of Australian shares. The ASX 200 dropped 3.2 per cent and the All Ordinaries index fell by 3.1 per cent.
Yet that’s perhaps no surprise. The markets were expecting the UK to stay in the EU and there’s always a negative reaction to such a shock. While such news is hardly cause for celebration – and rightly made businesses and investors sit up and take notice – it’s perhaps more important to think what the long-term position might be.
We’re still not clear what Brexit means
The first think worth noting is that it’s not yet clear what ‘Brexit’ will actually mean. While it seems fairly clear that the UK will no longer be a member of the European Union going forward – although some campaigners still want to reverse the close-run decision – the future relationship between Brussels and London needs to be decided in a set of negotiations.
These negotiations are set to be politically charged and could even spill beyond the two-year deadline imposed by EU rules, with UK politicians talking of a transitional period while the country dis-entangles itself from the rules and regulations established over the last few decades.
Until this all happens, we won’t know for sure what the trading relationship between the two is, nor will we know whether or not the UK’s influence in the world is diminished. If there’s to be another shock like that of the ‘day after the vote’, it could only come if the UK crashes out of the talks entirely.
While the fall of the pound, for example, might make some imports cheaper and present opportunities for those looking for online trading opportunities on the markets, a poorer UK isn’t good news for the Australian tourist economy – which attracts more than 700,000 visitors from the country every year.
Could Australia use its leverage for a new deal with the UK?
A bad Brexit deal might harm Australia’s tourist income, but it would also be bad for business. The UK exports almost £9 billion of goods here and won’t want to do anything that harms that trade. In fact, there are even suggestions that it might want to strengthen links with Commonwealth countries, of which Australia is clearly a key player.
Along with our neighbours New Zealand, Australia has already expressed its desire to establish a trade deal with a post-Brexit UK. Indeed, there are many people in both countries who resent the way in which the UK’s ties to the EU damaged trading links between the countries, with tariffs a particular issue for Australia. If talks could remove those tariffs, then Brexit might well be embraced as a positive step for our economy – especially for companies such as Amcor which has a strong presence in the UK.
Brexit still has the potential to cause more shocks for the global economy. In the days after the vote, we’ve already seen that this could impact us in Australia and we need to be braced for a similar reaction in the markets here. But, while we need to guard against a potential shock, Australian businesses also need to try to make the most of any opportunities which might be offered up. Specifically, we need to push for the removal of tariffs to open up new avenues for trade.