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How Has Brexit Been Going? | Economics Explained - YouTube
Channel: Economics Explained
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it was just over five years ago that the
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citizens of the uk went to the polls to
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vote on whether or not to leave the
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european union a non-binding referendum
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which most onlookers saw as little more
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than an opportunity to silence a vocal
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minority shocked the world when it came
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back in favor of the decision to leave
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three and a half years later after a
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long and drawn-out period of
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negotiations the uk finally left the eu
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ending its 47 years of membership at the
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time there were widespread concerns that
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this would prevent people from traveling
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back and forth for the uk it had the
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potential to shut down certain
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businesses especially those catering to
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frequent travelers from the eu and above
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all else it threatened the living
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standards of average brits who had
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benefited from the eu membership whether
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they realized it or not of course all
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these concerns came true to an extent
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but not necessarily because of brexit
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but rather the global pandemic which hit
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the country particularly hard during the
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lead up to the actual exit day this has
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made it difficult to assess what
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hardships are being felt as a result of
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brexit and which hardships would have
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been felt anyway as a result of the
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pandemic by the same logic and in the
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interest of fairness it makes it
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difficult to determine if the promises
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made by brexit supporters were founded
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in reality given that even the best
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economic plans would have been
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struggling in the global economic
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environment of 2021
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so how much damage has brexit done to
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the united kingdom's economy has the uk
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benefited from the fact that brexit took
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place during the pandemic and finally
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what will this all mean for the uk's
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ability to recover from the pandemic
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once we have done all of that we can put
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the united kingdom on the economics
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explained national leader board
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now one of the biggest issues facing the
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uk and the years between the referendum
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and actually leaving the eu was the
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uncertainty around what a post-brexit uk
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would actually look like there were a
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range of conflicting theories suggesting
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everything from it being some kind of
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pommy utopia finally free from the
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shackles of the continent all the way
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down to it being armageddon complete
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with rioting in the streets and empty
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shelves of course the second option
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doesn't sound great but what might have
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been worse is not actually knowing which
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way the country would go the biggest and
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most immediate impact of brexit would be
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on trade the european union is first and
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foremost a union of free trade the
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countries within the union all agree to
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trade amongst one another without
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levying tariffs or imposing import
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quotas this is further assisted by the
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fact that most of the remaining members
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have used the same currency the euro
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since was introduced in 1999. on the
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opposite side of the same coin the eu
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imposes heavy restrictions on trade with
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non-member countries as a way to
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incentivize eu members to trade with one
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another rather than trading with an
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outsider it does still happen and
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exceptions are made for certain goods
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and materials that are not abundant
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within the eu natural gas from russia
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that's fed germany is a perfect example
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of this now i'm not going to get into
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the benefits and drawbacks of free trade
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in this video because it really is
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beside the point regardless of if this
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kind of free trade region is beneficial
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to its members the uk is now an outsider
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they have gone from being the
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beneficiary of free trade agreements to
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the victim of harsh trade restrictions
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this wouldn't be good for any country
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but it's especially bad for the uk given
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just how dependent they are on trade to
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support their economy to understand just
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how important we need to look at a
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figure called trade intensity when
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economists look at trade figures they
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normally focus on net trade as in
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exports minus imports if we want to
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calculate gdp we look at the sum total
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of consumer spending plus government
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spending plus investment and net exports
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net exports also make up the balance of
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trade and by extension things like
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current account balances so it's easy to
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see why it gets a lot of attention but
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consider this imagine two countries one
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that has no imports and no exports it's
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completely isolated then imagine a
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country that imports a trillion dollars
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worth of goods in a given year and
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exports a trillion dollars worth of
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goods as well both of these countries
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would have the exact same net export
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figure but the second example would
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likely be doing much better for itself a
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trillion dollars worth of exports would
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require the employment of millions of
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people and a trillion dollars worth of
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imports would massively improve the
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average living standards for those same
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workers the second country would also
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naturally be much more dependent on free
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trade agreements so that's why it's also
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important for economists to consider
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trade intensity figures trade intensity
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is just the sum total of imports and
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exports divided by gdp so if we take our
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oversimplified example of these two
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countries here assume they both have a
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gdp of four trillion dollars then the
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first would have a trade intensity of
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zero percent where the second would have
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a trade intensity of 50 percent you can
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clearly see that trade intensity is
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often a much more indicative figure of
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what is really going on in an economy so
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why is this important to the uk well the
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uk has one of the highest trade
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intensity levels in the world the uk's
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trade intensity was 63 in 2019 compare
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that to other major advanced trading
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nations like australia at 46
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japan at 35 percent and the us at 24
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and you can start to see just how
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important trade really is to the uk
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historically this makes sense the uk
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itself is a relatively barren rock in
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the middle of the atlantic devoid of
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much of the natural resources it would
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need to properly fuel its economy it has
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also historically been a great colonial
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power so trade is something that came
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naturally to it as it became more and
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more important to the world economy
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throughout the last few decades this is
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where that uncertainty about what brexit
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would look like becomes really important
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again a worst case scenario like the
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much feared no no-deal brexit with hard
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borders and no free trade at all between
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the eu would not have been good
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obviously but it would have been
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possible to plan for let's say you ran a
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tool manufacturing business you have a
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small factory in a warehouse and you
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primarily send high-end machining
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equipment to other businesses within the
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uk and across the eu once those
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referendum results came in you would
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have been put in a pretty difficult
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situation without a free trade agreement
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in place you would no longer remain
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competitive in europe because you would
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need to pay import taxes on all of the
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tools that you sell there you could get
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around this by setting up a separate
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factory in the eu but that's a huge
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capital investment and if it turns out
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that the uk is able to negotiate a
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favorable trade deal with the eu then it
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would have been an investment made for
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nothing you could also save up money
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just so that you have cash in hand ready
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to buy a factory quickly if required but
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then you have a pile of cash sitting
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around and not being reinvested into the
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business or being paid to new employees
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or even getting sent out as dividends to
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your investors money sitting around
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waiting for something to happen does not
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help the economy money being used for
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any of these purposes does if business
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owners knew what was happening even if
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it wasn't good news they could take
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measures to deal with it the combination
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of a drawn out decision to actually
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leave followed up by a year-long
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transition period combined with the
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existing economic fallout from the
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global pandemic made it incredibly hard
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for individuals businesses and even
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entire governments to plan much beyond
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the immediate future but of course now
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that we have the benefit of hindsight we
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can actually look at a proper before and
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after of brexit
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trade has dropped significantly no
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surprises there especially considering
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the impact of the pandemic on things
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like travel and general business
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activity trade intensity fell from 63 in
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2019 to 55 in 2020 this might not sound
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like a huge drop and it still puts the
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uk well ahead of most other nations but
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this figure was captured during the
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so-called brexit transition period that
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period is now over and the uk's trade
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relationship with eu is now being
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defined by the eu uk trade and
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cooperation agreement or tca for short
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the timeline is that the uk officially
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left the eu at the beginning of 2020 the
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transition period agreement was then in
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place until the end of 2020 and now the
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tca has been in place for just over 11
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months the terms of the tca which is
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only partially in effect at this point
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are in general much more limiting than
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the terms of the transition agreement
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and the terms of the transition
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agreement were in turn much more
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limiting than being a full member of the
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eu it is of course less limiting than a
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no deal brexit but perhaps not by much
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goods exports to the eu are down
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significantly this year meaning trade
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intensity may very well see another 10
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slide in 2021 on the conservative side
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the center for european reform has
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attempted to isolate the impact of
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brexit by using a statistically modeled
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doppelganger uk to assess what would
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have happened had the uk remained in the
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eu that analysis concluded that since
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the transition period ended leaving the
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single market and customs union had
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reduced uk goods trade by 15.8 percent
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as of august 2021
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15.8 is huge this will directly impact
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hundreds of thousands of workers and not
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for the better now despite being the
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first thing that everyone thinks of lost
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trade might not actually be the biggest
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hit to the british economy rather it
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might be lost manpower you might have
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seen the headlines about empty shells
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and gas stations turning away customers
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in the uk at the moment well this has
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been caused by a severe labor shortage
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the uk is down about 100 000 truck
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drivers many of whom used to be
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non-british citizens who worked in the
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uk under the eu shared labour agreement
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you see prior to brexit any citizen from
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any eu country could live and work in
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whatever other country they wanted to
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within the eu this had some major
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advantages like companies been able to
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leverage the best and brightest from a
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large labor pool and it had some
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disadvantages like the brain train
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pulling promising young workers from
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poorer countries to richer countries
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where they could earn more money
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furthering the divide i really can see
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the arguments for both sides here but
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regardless of all of that truck drivers
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were one of the most represented groups
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of workers taking advantage of this
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policy truck driving in general lends
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itself to being on the move when you
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combine that with free trade agreements
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across a relatively small landmass and
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language barriers not being a huge issue
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to driving a truck around it's no wonder
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that a lot of european truck drivers
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basically just went where the demand was
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this meant that overall the eu needed a
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smaller trucking fleet than what would
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exist if all of these countries
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maintained all the trucks that they
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needed year round the downside of this
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is that as the uk left this shared
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labour pool it was shut off from the
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workers it needed to keep the country
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running the same problem is becoming
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apparent with other seasonal workers as
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well especially in agriculture where
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workers from across the channel were
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responsible for a large portion of
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harvesting activities which take place
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once or twice a year this is raising
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concerns over empty tables at christmas
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this year which is leading to panic
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buying which is further accelerating the
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supply chain shortages the country is
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facing the government has tried to fix
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these issues by granting 5 000 3-month
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emergency visas to truck drivers and
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putting military drivers on standby if
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things get really dire altogether this
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drop in trade employment and consumption
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has cost the government around 30
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billion pounds just over 41 billion
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dollars in lost tax revenue
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coincidentally that is roughly the same
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amount that was raised by introducing
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new taxation measures earlier this year
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heavy taxation during a period of
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economic turbulence is the exact
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opposite of what most economists
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recommend but the money needs to come
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from somewhere the uk's fiscal watchdog
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the office for budget responsibility has
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projected that all of these factors
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working together will mean that brexit
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will result in a 4 reduction in the uk's
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long-run gdp this is on top of a 2
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reduction in gdp projected to be caused
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by the pandemic again this might not
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sound like much but the uk really hasn't
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had sustained growth since the gfc this
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four percent hit could genuinely push
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its economy back over a decade
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alright now it's time to put the uk on
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the economics explained national leader
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board starting as always with gdp the uk
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is the fifth largest economy in the
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world with an annual output of over 3.1
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trillion us dollars it's still well
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behind the true superpowers china and
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america also comfortably behind japan
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and germany but it still gets a 9 out of
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10.
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that output is spread between 67 million
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people to give the country a gdp per
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capita figure of just over 46 000 us
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dollars this is pretty much in line with
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its old european peers like france and
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germany and it gets a seven out of ten
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stability and confidence is really
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difficult to say of course this is a
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completely subjective measure the
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country is obviously going through some
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turbulence but it has historically been
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seen as one of the most stable nations
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in the world especially for things like
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banking we actually made an entire video
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on this not too long ago so go and check
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that out if you are interested look it's
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still an advanced nation with robust
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laws a good financial system a
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well-regarded currency and a functioning
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democratic system so it gets an eight
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out of ten five years ago it would have
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been the easiest 10 out of 10 ever
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growth has not been great as we saw
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earlier in this video its gdp is still
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below its previous peak in 2007. since
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then it has been the victim of the gfc
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the eurozone crisis brexit and the
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pandemic it's certainly resilient and
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hasn't fallen much but it hasn't grown
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it gets a three out of ten
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finally industry
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this is surprisingly strong the uk is
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still home to a healthy industrial
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sector which manufactures everything
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from high-end sports cars to
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cutting-edge jet engines it's also home
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to the second largest financial centre
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in the world so the country gets a 9 out
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of 10. altogether that gives the united
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kingdom an average score of 7.2 out of
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10 a very healthy score indeed which
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puts the nation into equal third on the
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leaderboard alongside france the
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netherlands and taiwan thanks for
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watching mate bye
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