CIPS Americas News


The Brexit Headache

CIPS 30 July 2019

When the United Kingdom leaves the European Union on October 31st of this year – how might it affect U.S. businesses with ties to Great Britain and Europe?

CIPS economist and Visiting Fellow at Cranfield School of Management, John Glen recorded a podcast with his insights on the subject and from that we developed this Q & A article. It has been edited for length.

The Brexit Headache

Q: Since Americans use Britain as a doorway to Europe, what complications would result from a hard Brexit?

JG: American goods in transit in the U.K. on their way to Europe would not be affected at all. Britain remains a member in the common transit convention, which means that any goods that are transit in the U.K. and not fabricated in the U.K., will move into the E.U. in exactly the way they have done before. Any goods that come from the U.S. and are fabricated in the U.K. before they move onto the European Union, may be subject to E.U. tariffs.

A key issue for U.S. goods in transit in the U.K. will be transit times into Europe. The expectation is that those goods will be delayed at the border because they will be competing against other goods about to enter Europe. There is a potential for long delays, and the customs procedures post-Brexit are going to create significant strains on both the U.K. and transiting goods from outside the U.K.. So that’s a significant issue for U.S. goods transiting the U.K. If we have a hard Brexit it’s going to take at least 12 months for customs procedures at our ports to be in a position to be able to deal with that trade efficiently.

Q: What is the impact on foreign exchange? What currency strategy is best when dealing with the U.K. or Europe?

JG: First of all, if there is a hard Brexit the value of Sterling will fall to what I’m calling parity, essentially where one Pound is equal to one Euro. Right now the Pound is floating just above one Euro and ten cents. As a result of that the U.S. Dollar will appreciate against the U.K. Pound and also I would expect some appreciation of the U.S. Dollar against the Euro. The reason for this is that Brexit will cause uncertainty in Europe. We can already see the impact of Brexit in Europe; it is slowing down activity in Europe, and therefore I would expect the U.S. Dollar to appreciate against the Pound and the Euro. In relative terms slightly more against the Pound than against the Euro.

Q: Is it anticipated that the U.K. will change trade policies? Should we expect additional tariffs and taxes? Which products are the most vulnerable to these taxes.

JG: As far as the U.K. is concerned and its trading relationships with the United States, you should expect no change in the trading relationships. No additional tariffs and no additional taxes. If anything, the U.K. will try and make trade between the U.S. and the U.K. freer. U.K. politicians are absolutely desperate for a trade deal with the United States from an economic perspective and from a political perspective, and all of the negotiating cards are in the hands of U.S. negotiators.

So the expectations should be no change in trading relationships with the European Union; that will go on as usual, and absolutely no change in trading relationships with the U.K. unless the U.S. and the U.K. strike a new deal.

Q: We’ve enjoyed easy travel to the U.K. and Europe. How will travel restrictions, visas and other complexities impact the U.S.?

JG: I don’t see any problems for U.S. nationals wanting to come to the E.U. or wanting to come to the U.K. As far as moving into the E.U. is concerned, it will be business as usual. As far as movement into the U.K. is concerned, again, you will be able to enter as you did when we were a member of the European Union. If anything, movement into the U.K. could be made easier as trade deals are negotiated between the U.K. and the United States, and I would see movement in an out of the United Kingdom being a part of that deal.

All that I would ask, as a U.K. national, is that you in the United States would reciprocate when we come to visit you and make it a little bit easier to get into your country.

Q: Will Brexit destabilize the global economy, and what will be the impact on global markets?

JG: I think for you guys in the U.S. this is the big issue. Brexit has occurred at the same time as the U.S. has been involved in trade disputes with, most obviously, China. And this has been seen in the global context, the two events, as a rise in protectionism.

We are now seeing – at least our interpretation on this side of the Atlantic of the U.S.-China trade tensions -- both sides are trying to pull back as it is becoming quite clear to them what the costs are of stopping international trade on a free basis. Both China and the United States have incurred significant costs because of that trade disruption.  

What we have in the U.K., however, is a government and an economy, and a political economy that is caught in a Catch-22 situation. So, we have voted to Brexit, we’ve had nearly three years to think about it, we actually don’t like some of the economic impacts of that Brexit and we know that Brexit, particularly under a no-deal scenario is going to be rather expensive and costly. As far as economics is concerned it’s going to damage U.K. interests, it’s going to damage E.U. interests, but, we want to be seen from a political perspective, to be delivering what our population voted for.

So, our population, or an element of our population wants to Brexit. We know that it is going to cost us a lot, and we are now in a position where our politicians are saying that we are going to pay the high costs in order to deliver on the democratic decision of our voters. So on one hand we’ve got the U.S. and China pulling back from a protectionist stance, and on the other hand we’ve got an anti-free trade that is occurring which is likely to put a strain on the global economy.

In Europe right now you have an increase in uncertainty. You are seeing a slowdown in the German economy, slowdown in the U.K. economy, rather insipid, not very inspiring rates of growth. The good news for the global economy, in fact the bigger news for the global economy is that the U.S. and China seem to be pulling back from the brink, so in the round, the global economy is going to grow at a slower rate than would have been the case. The U.S.-China impact is far more important than Brexit, but Brexit will slow down the global economy.

Additional Resource: Watch this webinar from our knowledge partner, GEP. Brexit and Beyond: Tips and Tools to Help Procurement Prepare

Page Loading
Page Loading
Page Loading
Page Loading

Searching...

This may take up to 30 seconds