• Charles

How Brexit Will Affect Asian Economy?

Updated: Apr 8, 2019

The June of 2016 saw much uproar regarding the Great Britain’s decision of leaving the European Union. The term Brexit was coined by combining two words, Britain and exit. While the situation was tricky for all the European countries, the Brexit will also have some repercussions on the Asian economy. (OK) The impacts of the Brexit were very immediate as the pound fell more than 10% when the Asian trades are concerned. On the other hand, Japanese Yen has glided against the expectations of the policy makers of Japan. The markets that were emerging have witnessed a fall in their currency values because the investors have pulled out their money from risky assets.

When it comes to the economy of Britain, there are more than a few challenges that the country needs to tackle. First of all, UK has to negotiate its economic status with the remaining European Union (EU). Trade deals with the EU will have to be renegotiated. But this is not the case, as the EU is more likely to implement trade tariffs to serve as a deterrence against future EU members from leaving the EU.

One major change happening across the global economy is that investment money is moving from riskier assets to the safer ones. This, in turn, has a direct impact on the Asian stock markets.

As far as the Asian markets are concerned, the policy makers from India, Japan and Korea aren’t revealing much about the situation’s impact on their countries’ economies. All the policy makers from the aforementioned countries are trying to keep the investors calm and market stable.

However, it's also true that it is unlikely that the Brexit will have a long- term impact on Asia’s economy. When it comes to the percentage of exports to the United Kingdom, the figures are somewhere around 2-3% for Asian countries like Vietnam and Hong Kong. The percentage is even lower for economies like Malaysia and Indonesia which is around 0.2-1%. With low trade correlations, it is unlikely the Brexit will have a significant impact on Asia economy. India and Japan Had Concerns over Brexit

However, the big Asian economies like Japan and India may have some impact from the Brexit. Japan Inc. has approximately 140,000 employees in the UK alone while the UK investments total at $59 bn. The large scale Japanese car producers and manufacturers including Toyota are already of the opinion that the leave vote might lead to 10% duties on the UK made cars that are sold in the European Union.

At present, Toyota exports around 90% of the cars it manufactures in the United Kingdom and three-quarters of the aforementioned percentage goes to the EU. All the Asian companies that have set up their operation base in the UK for gaining easy access to the European Union countries need to have a reassessment done.

Hitachi, the Japanese electronics firm, for instance, was quoted saying that it would rethink about its post-Brexit UK operations. India’s IT exports to Europe and the UK which is worth almost $30bn and it accounts for a quarter of India’s IT exports. ​ The Tata Group which is among India’s most eminent business houses also talked to the media about the Brexit. Tata has its business in the UK ever since 1907. Tata spokesperson said that the business house presently has 19 independent Tata companies in the United Kingdom where they deal in diverse businesses. They also added that the market access, as well as access to a skilled workforce, will be their main considerations. Finally, Asian policy makers are surely keeping an eye on the process of how UK decides to separate itself from EU. If there are some serious repercussions of the Brexit from EU, then it would be foolish to believe that the Asian economies would be unaffected. In conclusion, the Brexit is sure to change the global economy climate in various ways.

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