How will Brexit Affect your UK Business?

A straightforward answer to this question would simply be: Badly. Think of those mean high school kids in the cafeteria that don’t let you sit with them to eat your lunch. Well, Brexit might feel the same. Europe would dislike the UK (remember Juncker?) and many EU and non EU countries might just turn out to be our frenemies. But what’s done is done. On 23 June 2016, the UK voted to leave the EU. UK businesses that trade within the EU are concerned about the effects of Brexit on their business. There are a series of problems to think about: trading agreements, immigration and labour laws, and laws about the ways businesses operate within the EU and UK. Companies that don’t have a direct relationship with other EU countries are also worried about the general situation in the EU, which will have an economic impact on their business deals. Investors are already withdrawing their support from the UK, while the pound has shed a few pounds and is now stable at $1.306.

Being within the EU, UK businesses can trade freely without paying any tariffs. This is also easy for EU countries buying UK goods since they don’t have to pay any taxes to import them. At the moment, around 324,000 UK businesses trade with EU countries and over 1 million UK businesses sell to 500 million EU customers. 44% of British exports are sold to other EU countries. 53% of UK imports come from EU countries. This is why Brexit negotiators insist on having access to the EU’s single market. Of course, the UK trades with developing countries around the world, but its biggest trading partners are within the EU.

Top 6 UK exports to the EU

Aerospace: 47% exports to the EU

Pharmaceuticals and Chemicals: 54% exports to the EU

Food Manufacturing: 53%

Transport: 44%. Jaguar, Ford, Nissan and Toyota have factories in the UK.

Financial Services: 41%

IT and Telecommunications: 46%

Which countries left the EU? 

In 1962, after an independence referendum in French Algeria, the country was declared independent and stopped being part of France and the European Communities (EC). And, in 1985, Greenland had voted to leave the European Economic Community (EEC).

The ancestors of the European Union: The European Communities included three international organisations: the European Coal and Steel Community (ECSC), founded in 1951, the European Atomic Energy Community (EAEC) and the European Economic Community (EEC), which was formed in 1958. In 1993, the EEC was named the European Community (EC) with the Maastricht Treaty. In 2007, this was revised into the Treaty of Lisbon. Finally, in 2009, the EC became the European Union (EU) with the Treaty on European Union (TEU). It introduced European citizenship. The two treaties that the EU is now based on are the Treaty on European Union (TEU) and the Treaty on the Functioning of the European Union (TFEU).

EU membership and British trade

The EU’s single market boosts trade by removing tariffs on goods, enabling EU member states to trade freely within the EU and reduces the cost for exports since companies don’t have to comply with 28 different national rule books. Evidence shows that big, strong and nearby economies trade more than the poor and distant ones. The EU helped boost UK’s trade and made it more attractive to foreign investment. The UK has enjoyed the privileges of capital from non EU countries that wanted an EU country as their base.

UK as a non-EU Member

Eurosceptics believe that the EU’s export earnings from the UK and the UK’s big economy will help to negotiate a free trade agreement with the EU easily. They also think that having no EU regulations will help strike deals with other countries without the limitations of EU membership.

While the EU is becoming less important to the UK, it still buys half of Britain’s exports. Definitely, British firms will suffer from having no access to EU markets. But even access to non-EU markets is also determined by the UK’s EU membership.

British access to international markets is governed by the World Trade Organisation (WTO) and is currently agreed by the EU. The WTO is a global organisation that deals with trade laws between nations. But if the UK is no longer an EU member then all of these trade relationships will need to be renegotiated. Such deals, however, do not depend on your nation’s wealth and the size of your GDP, but on how many people you have. The UK’s population is 64 million, but the EU’s population, even after Brexit, will be 440 million. 

British businesses might have to deal with tariffs, which will increase prices and affect sales. Doing business with the UK might become more difficult due to different laws and travel costs. Many companies are looking for properties in EU countries and considering moving their business outside the UK. Foreign-owned businesses will find it easier to relocate if they disagree with the UK government’s policies. This is particularly important when businesses are exclusively dealing with EU countries. The sector that will be the most hurt by Brexit is car manufacturing because it is owned by foreign companies. Nissan and Jaguar are the two biggest investors and a UK exit might turn them away from Britain. For them, a preferable and more attractive location would be within the EU where access to the European market is unrestricted. Financial and business services are also vulnerable sectors. If the UK exits, Goldman Sachs said that it would leave London and head for another EU financial centre. 

While there is the promise of opening new trade deals with Asia after Brexit, many believe that because the UK will be desperate to negotiate new agreements, many regions, like Asia’s money-making markets, will take advantage of its weakness. It seems that the UK needs Asia more than Asia needs it. David Tweed at Bloomberg said that: “The region took 16.3 percent of British exports last year, according to the Office for National Statistics. But the U.K. doesn’t rank in the top 10 in two-way trade with any major Asian nation.”

China, for example, is the 6th largest export destination for the UK where vehicles, pharmaceuticals and power-generating machinery are sold. But, after Brexit such trades might not be as easy. Zhang Xiaojin, director of the department of political science at Tsinghua University, said: “In one scenario, Britain’s economic dependence on China grows and it gives China more preferential terms in trade negotiations.”

The UK will find it difficult to negotiate agreements with emerging economies such as those of China or India. It is already open to foreign capital, and being outside the EU won’t give it more power. The benefits of EU are much greater than people understand. The UK’s strength lies with its large trading partners within the EU. A UK outside the EU, with the immigration restrictions that the Leave campaign so desires, will be a country with a weaker labour market, something that will, in the end, affect businesses’ costs. The UK will struggle to dominate a global trading system where the US, the EU and China are its major actors. The UK would not be attractive to investors without its European privileges and would find it hard to partake in emerging markets. If the UK manages to negotiate something close to what it once had (sounds crazy!) and partake in EU trading deals, this would make many UK firms happy. Even Juncker himself (as never before seen!)