The Freedom Party’s desire to exit and the consequences for our trade

The Freedom Party won a landslide election victory on 22 November 2023. In the run-up to the election, the Freedom Party’s victory had already been expected, but the eventual size of the Freedom Party’s election victory came as a major surprise. The meaning of this victory is that the party’s program will become central in the next formation.

What is striking about the electoral debates is that discussions that dealt with international politics or the international economy were minimal or non-existent, while international challenges became greater than ever before. Consider the various military conflicts currently underway, the European Union’s relationship with Russia, the elections scheduled to be held in the United States in 2024, which may further strain the relationship with China, and so on. The discussions and campaigning were almost exclusively on issues occurring within our national borders.

Now that the Freedom Party is the largest party of all and will take the lead in its formation, it is a good idea to take a look at what was stated in the Freedom Party’s platform on international economic cooperation.

The Freedom Party wants a binding referendum on NEXT

An eye-catching item in the Freedom Party’s election program entitled The Dutch returned to first place This is how people view the European Union. We quote from the Freedom Party’s election manifesto (p. 43):

“This intense cooperation between countries does not require a political union, such as the European Union, an institution that is amassing more and more power, consuming taxpayers’ money and imposing diktats on us. The Freedom Party wants a binding referendum on NEXT.

The election manifesto continues on the same page with:

As long as the NEXT referendum has not been held yet:

• We are committed to getting our billions back from Brussels and a much smaller contribution from the EU. The Netherlands will become a net recipient rather than a payer

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• Not transferring powers to the European Union, but restoring them

• Preserving and restoring all our veto powers

• Not expanding into the European Union or taking steps in this direction

• An immediate end to the European Parliament’s stupid monthly traveling circus from Brussels to Strasbourg

• Not raising the European Union flag on government buildings and in public jurisdictions. We are in the Netherlands, only the national flag flies here.

The possibility of a future occurrence cannot be ruled out

It is quite clear that if the Freedom Party succeeds, the importance of the European Union for our country must be significantly reduced and, above all, any further step cannot be ruled out, even after a binding referendum.

The consequences of such a step would be great. First of all, because of the simple fact that the next Brexit referendum could be held in the Netherlands – one of the six founders of what is now the European Union. This will lead to a loss of reputation within the European Union. In addition, if exit actually occurred, the consequences for trade and national income in the Netherlands would be very negative.

The Netherlands is an open economy and almost a third of our national income is obtained through export trade and about 2.5 million jobs are linked to exports. The European Union is our largest trading partner and its importance cannot be easily overestimated; Thanks to the European Union, our national income is more than 3 percent higher than it would have been without the European Union.

In short, it is interesting to see what the next shift will mean for our international trade and to account for the solar program in this regard. Please note that we limit ourselves here to trading effects. This leads to an underestimation of the actual effects because we do not consider the effects on labor migration and foreign direct investment.

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The greater the distance, the smaller the trade

A common method in the scientific literature to study the effects of a trade agreement is the so-called gravity model. The basic principle of this model is simple: trade between two countries is large if both countries are large, but it is negatively affected by the distance between those two countries. The distance factor must be interpreted broadly. This concerns not only the distance in kilometers, but also the cultural and institutional distance. The more different countries are from each other, the greater the distance and the smaller the trade.

Like any model, the gravity model is an approximation of reality and not all relevant aspects are included; That’s what a model is for. However, modern statistics enable us to take a surprising number of aspects into account. Our experiences with more than three hundred existing trade agreements enable us to estimate what a Dutch exit from the EU might mean. Over time, the euro was also abandoned.

In keeping with the already established importance of the EU for the Netherlands, the effect is very negative: the Netherlands’ total exports fell by 45 percent and national income fell by 2.4 percent (see table). The effects on various sectors are also significant: agricultural exports fell by 17.8 percent, and industrial exports by no less than 43.5 percent. These figures constitute a minimum that would be greatly exceeded if we also take into account the interconnectedness of international trade in semi-finished products across global value chains. There are also countries that benefit from the next step; In some cases there is a shift towards countries that fill the Dutch export gap.

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The effects of the neighborhood on the trade and prosperity of various countries

Any subsequent move would hit our trading partners within the EU and especially our closest neighbors hard: Belgium’s exports would fall by more than 6 percent and by 2 to 3 percent for Germany, Denmark and the United Kingdom. National income in these countries will also decline. Due to its very favorable geographical location, the Netherlands is an important trading partner of the surrounding EU countries with the rest of the world. However, this advantage will largely dissipate in the event of a setback for both the Netherlands and the rest of the EU.

The Netherlands is a trading country and has therefore always called for further stimulation of international trade. This contributed to prosperity in the Netherlands. The next step reflects the achievements related to international trade. The UK’s experience with Brexit also shows that the finger exercises we have presented here are not purely theoretical; There, trade declined sharply and national income declined. The disastrous outcome of Brexit is such that two-thirds of the British population now regrets it. Also, the next exit is not in the interest of the Netherlands, and therefore not in the interest of the Freedom Party voter.

Let us hope that the potential coalition agreement will not be matched by any other agreement.

About the authors:

Steven Brackman is Professor of International Economics, Harry Jarretsen is Professor of International Economics and Business, and Tristan Cole is Associate Professor of International Economics, all at the Faculty of Economics and Business at the University of Groningen.

Megan Vasquez

"Creator. Coffee buff. Internet lover. Organizer. Pop culture geek. Tv fan. Proud foodaholic."

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