Manufacturing industry in the United Kingdom contributes to 10% of its economy, but the industry makes almost half of its trade. It is anticipated that the orders of the British manufacturers will reduce after the Brexit since European Union countries provide a large market for manufactured goods. The manufacturing industry must prepare adequately to ensure a smooth transition of its activities after the British exit from the European Union. The Brexit is expected to have both positive and adverse effects on the UK economy. The report Seeks to discuss the impact of Brexit on the supply and demand supply; market efficiency, welfare economics and prices elasticities in the manufacturing industry.
Foremost, the British exit from the European Union will adversely affect the demand and supply of United Kingdom manufacturing industry. Supply and demand is the main factor in the market economy (Mankiw and Taylor 2011). Manufacturing industry in the UK will be faced with low demand for their manufactured goods due to increased prices after the Brexit. Ideally, after the withdraw of the UK from the European Union, it will lose the advantage it enjoyed in the single market agreement, and therefore it will need to renegotiate it. The UK will face high tariffs for it to trade with other European Union countries since she will not be a member. The tariffs will further increase the prices of manufactured goods from the UK hence experiencing low demand. The supply and demand theory depends on prices and availability of products. The supply of manufacturing industry in the UK will be high while its demand will be relatively low. The law of demand asserts that the higher the price of a commodity, the lower the amount or quantity demanded. This explains why the manufacturing industry in the UK will face low demand due to the increased prices of its goods. The price of the manufactured goods will increase because of the cost incurred in trade agreements and tariffs. Therefore, the manufacturing industry will reduce its production hence negatively affecting the UK economy.
Nevertheless, price elasticity will be brought by the Brexit because after the exiting of the UK from the European Union; it will not enjoy the single market like other members of the EU. The cost incurred in exporting goods to other states as well as high tariffs will increase the price of the manufactured goods. The change in the price of the goods will lead to a reduction in demand hence cutting the rate of production (Gros 2016). After the exit from the EU, the costs of all manufactured goods will increase. The price elasticity of goods from the manufacturing industry will further reduce their demand in other countries. Price uncertainty of goods makes it difficult for consumers to plan when and what to buy. Therefore consumers might shift to other manufacturing industry with predictable prices. This means that the UK will incur losses due to the reduction of the market for their goods. The UK manufacturing industry will be negatively affected by the price elasticity brought by the Brexit.
The welfare economics will also be negatively affected by the Brexit. The exit of the UK from the European Union will reduce the demand for goods from the manufacturing industry. The industry will reduce its production output hence laying off some workers. Reduction of production output in the manufacturing industry will result in unemployment among the citizen thus affecting resources allocation for social satisfaction (Coyle 2016). The overall UK economic growth will slow due to low redistribution of income. The citizens will experience low living standards due to increased unemployment. Nonetheless, the domestic market of manufactured goods will be adversely affected since UK citizens will cut down their daily expenditure.
The UK Brexit will render the market for its manufactured goods to be inefficient. Market efficiency is realized when the production cost of goods is cheaper than an investment strategy’s expected income. The European Union countries will enjoy market efficiency because of the single market which has no restriction to the member countries. The UK will have to struggle to market its manufacturing industry products because of their increased prices brought by imposed tariffs. Market efficiency is crucial for states if it wants to improve its economy by favorably competing in the market. It will also be difficult for the UK to get market information after the exit from the European Union. The United Kingdom manufacturing industry might not get the required information in setting their market prices for their goods; hence the market inefficiency after the Brexit (Mankiw et al. 2016). Informative prices realized from market efficiency promotes the economic growth of a country. The market inefficiency which is about to be faced by the UK after the Brexit would slow its economic growth since it will not have the essential information for setting its market price for its manufactured goods. Unavailability of reliable information about the market might throw the manufacturing industry into losses or reduction of demand for the manufactured products.
The government of the United Kingdom can enact measures that can affect the market outcomes after the Brexits. The measures are taxes and subsidies (Sampson 2017). The government aims to regulate the manufacturing industry as well as other economic activities through subsidies and tax to influence the market outcomes. For instance, after Brexit, UK will start importing and exporting goods to and from European Union countries as opposed to when it was a member where the single market agreement was used. Therefore imports from EU countries will be imposed on customs duties. Ideally, the market for manufactured goods from the UK and other EU countries will change.
It is expected that there will be a reduction of the market base for UK manufactured goods due to the imposing of customs duties. The prices of the manufactured goods from the UK are expected to increase hence lowering its demand in the EU countries. The law of demand holds that the higher the prices, the lower the demand. Custom duties will adversely affect the market for manufacturing industry products from the UK. Corporate tax, income tax, VAT and capital gain tax is expected to influence the market share of the manufacturing industry goods.
Cost of acquiring raw materials for manufacturing industry from outside the European Union will be subsidized by the grants from the UK government (Sloman and Garratt 2016). The cost of production in the manufacturing industry will be lowered hence reasonable and affordable prices for the goods. The subsidy will, therefore, increase the market share for the manufactured goods due to the lower prices than before hence high demand for the products. On the other hand, exporting goods will be costly for manufacturing industry after the Brexit because of the imposition of local import VAT and tariffs. It will be expensive to export manufactured good hence they will experience limited market. Government intervention through taxes has hardly hit the market for the manufacturing industry since it will be subjected to numerous taxes and tariffs before exporting their goods. The move will lead to increased cost of the products hence reduction in demand.
In conclusion, Brexit will not be easy for the UK economy. The market for manufactured goods will lack enough market thus incurring losses and laying off of employees because of reduced production. For the manufacturing industry to survive after the Brexit, it must do proper planning to maintain its sales volume despite being barred from exporting products to EU members. The economy of the country is expected to deteriorate for some time before the implementation of proper measures. The manufacturing industry will not transact freely with other European Union countries unless the UK initiates trade negotiation. However, the UK government is prepared for the post Brexit challenges that might face it. It has initiated favorable taxes and subsidies to help the relevance of its economy in the international market.
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