Sunday, June 4, 2017

Brexit Comes For Your Chocolate Bar and Customs Costs

The negative effects of the Brexit have been widely speculated, and the ultimate result of Britain's reactionary referendum are still unknown. But at least for now, the kingdom will be getting less chocolate for their pound as a weakening pound spurs sellers to offer smaller volumes at the same price to the island nation.

A weakening currency has a negative effect on the current accounts balance of a country as imports become more expensive relative to domestic goods. For a country that imports 48% of its food, this will translate to rising costs and fewer choices at the supermarket.

Ports also raise questions as the withdrawal date nears, with concerns about space and resources needed for performing the necessary customs activities being brought up in meetings. These needs would likely raise the cost of imports even further, taking a real cut of the value the U.K.'s citizens get from import goods.

In a few outside of class discussions, I've raised the topic of how isolationist policy could hurt domestic consumers through these kinds of currency devaluations. Do you think there is any threat to the power of the dollar as the Trump administration pursues similar isolationist lines? While Dr. Apps has noted that I "do not believe in American Exceptionalism," monetary policy is one place where I do begrudgingly accept the United States' seeming immunity to conventional theory. I don't expect a significant change in the dollar's strength or status as a global reserve currency as the administration takes its course. 

1 comment:

  1. I don't expect the dollar to lose much strength, at least in the near future.