Kovar Capital: What’s the latest with Brexit?

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Hey Taylor: I pretty much forgot Brexit was a thing until I heard something about it being finalized right before the end of the year. What’s the status there and how big of an impact might we expect to see? - Kevin

Hey Kevin: Following Brexit got pretty tedious after a while, didn’t it? At long last, some papers have been signed and now we get to see how things will change. 

The major hurdle was always trade, with UK independence meaning all European Union rules and regulations would have to shift to accommodate a new neighbor. On the EU side, the deal includes what they call the “four freedoms,” which allow for goods, services, capital, and people to cross freely between the UK and EU countries. In exchange, the UK gets to duck out of a lot of judicial matters that govern the whole of European Union trade.

What seems to have pushed the whole deal over the edge was an agreement on future trade deals and keeping things even. They settled on “managed divergence,” which allows for judicial review and legal retaliation if things start to feel unfair. It’s hard to say how sticky this process will get, but establishing some form of safeguard quelled a lot of anxieties on both sides. 

Now the UK gets to start implementing its own rules and laws with regard to national policy, which is what motivated this whole thing all those years ago. There will be movement on immigration and labor deals, and we might see a new trade deal negotiated between the United Kingdom and the United States. I’m sure that will happen at some point, but I don’t know if 2021 will be the year. We’ve got plenty of other fish to fry and our government might want to watch Brexit play out for a minute or two before getting in the deep end. 

There’s no hard border between the EU and Ireland, which matters for a whole lot of historically relevant reasons but leaves most Americans scratching their heads. In short, the divided states of Ireland straddle the UK and the EU, and a lot of people in Scotland are interested in gaining independence from the UK to rejoin the EU. That information will become more important if and when things get a little tumultuous again.

Two big takeaways for people like you and me. First, drastic change in Europe is a difficult thing to achieve. Second, this is just the very tip of the iceberg. The actual impact is about to start, so it’ll be interesting to see what’s what in six months or so. Thanks for the question!

Disclosure: Information presented is for educational purposes only and is not an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. To submit a question to be answered in this column, please send it via email to Question@GoFarWithKovar.com, or via USPS to Taylor Kovar, 415 S 1st St, Suite 300, Lufkin, TX 75901.