All politics is local. That was the resounding message the British people sent out to the world when 52% voted to leave the European Union on June 23. For the first time in the post war era, citizens of a developed economy have chosen to retreat from a free trade area instead of joining one.
In the immediate aftermath, the British pound fell to its lowest level against the US dollar in 31 years. Global stock markets tumbled too but have since recovered.
Brexit has opened a new schism between two worlds that have been impacted by globalization. The older, less educated, working class white males who voted to leave the EU and the younger college educated higher earners who are comfortable with diversity.
So how will Brexit impact the rest of the world? How will it alter the current economic order?
The most immediate fallout will be felt across the Atlantic in the upcoming American elections. Emigration is now a major issue on both sides of the Atlantic and it is more important than the economy.
Nationalism and the sense of sovereignty now rival economics in driving voter sentiment. That will mean that politicians will lean to less openness and tighter controls. This in turn will mean slower growth and possibly a rollback in policies.
Brexit has proved that the traditional idea of politics is changing – from the pursuit of a better life to a more existential idea – who are we and how do we protect what we have.
Globalization has enabled millions of talented people to move freely and has boosted global economic growth. It has unleashed the digital economy and disrupted traditional industries. New billionaires have emerged but millions have lost jobs and their livelihoods.
The central question is just who has benefitted from globalization and liberal internationalism. The truth is the spoils of globalization have not been equitably divided and a large portion of the global population has been left behind.
Britain’s referendum result will have ramification across the world and will hit emerging economies hard. The rising dollar may halt the recent upward movement in commodity prices, thus affecting export earnings.
Indonesia will definitely feel the impact of lower commodity prices as the government is already struggling to meet its budget revenue target. This means that the government will be under even more pressure to deliver public services and ramp up infrastructure development.
More importantly, a new level of uncertainty has been injected into the global system, which has spooked markets and investors. It is too soon to know just how this new uncertainty will unravel or change the dynamics of trade and investment flows.