From Westminster Abbey to Your Shopfloor—An Explanation of “Brexit”

Yesterday’s vote by 52 percent of the United Kingdom to exit from the European Union—the so-called British exit (Brexit)—has sent shockwaves across global financial markets and plunged manufacturers on both sides of the Atlantic into a long period of uncertainty. While there are no direct immediate consequences for the day-to-day operations of businesses in the United Kingdom, European Union or the United States, all businesses engaged in the transatlantic market need to start preparing for the changes that will in fact come.

Given the size of the U.S. commercial relationship with Europe, the U.K. decision is expected to have wide ramifications. Indeed, the U.S. commercial relationship with the United Kingdom and European Union combined is the United States’ largest in the world, representing about 40 percent of the global economy. Trade of U.S.–EU manufactured goods reached $836 billion in 2015, and cross-border investment equaled more than $5 trillion. Many U.S. companies with EU operations have headquarters in London, and about 17 percent of U.S.-manufactured exports to the European Union are destined just to the United Kingdom.

What Brexit means for manufacturers in the United States and their partners in Europe is expected to take years to unravel. The United Kingdom will soon start detailed and comprehensive negotiations with the European Union under Article 50 of the Treaty of the European Union to set the terms of its withdrawal, a negotiation which some expect may take two years or more. Expected impacts will be both on the U.K. market in particular and its trade and investment relationship with the European Union:

  • Businesses operating in the United Kingdom will undoubtedly see a change in the legal regime governing a wide range of their activities after separation, as U.K. rules will be substituted for EU directives and regulations. The extent of these changes, for better or worse, will be determined through the course of the negotiations and subsequent U.K. lawmaking. Yet, for U.K.-manufactured exports going into the European Union, EU standards and regulations are expected to continue to apply for those goods to be eligible for sale, as EU standards and regulations apply to U.S. exports.
  • Similarly, the United Kingdom will be negotiating a new trading relationship with the European Union, which may impact all businesses engaged in those markets. In particular, the withdrawal agreement will determine the tariffs and other terms of trade by which manufacturers in the United Kingdom access the EU market and EU manufacturers can access the U.K. market.

There are, however, much broader trade and investment implications of Brexit:

  • U.S.–U.K.–EU Trade and Investment Flows. The terms of the U.K. withdrawal from the European Union are expected to impact this trading relationship, at a minimum by increasing costs and red tape, but potentially in bigger and yet unknown ways. Details will be determined by the withdrawal agreement and subsequent discussions with the World Trade Organization and beyond.
  • Transatlantic Trade and Investment Partnership (TTIP) Talks. Early indications are that the Brexit vote will be a drag on pace and trajectory of the TTIP negotiations. Before yesterday’s vote, it had become increasingly clear that the differences separating the United States and European Union in the TTIP talks were looming larger than the many areas where we have common objectives and perspectives, creating major headwinds to TTIP completion this year. With the United Kingdom and European Union now preparing to enter into several year withdrawal negotiations, it is unclear exactly how the TTIP talks can continue apace. Furthermore, the loss of the U.K. voice within the European Union is likely to create even more differences between the United States and the European Union, making it harder for manufacturers in the United States to achieve their goals. Talk of a U.S.U.K. free trade agreement buoy some, but will frankly have to wait for the United Kingdom to unravel its relationship with the EU first.
  • Global Trade Implications. Yesterday’s vote could, of course, have a major ripple effect throughout Europe. Scottish leaders have already announced their desire to remain in the European Union, and there has long been speculation that other EU countries might follow the United Kingdom’s lead. While it is too early to forecast reliably any next step of this order of magnitude, the uncertainty it creates is palpable and will have wide impacts on the choice of new investment locations and expansions for years to come.

The National Association of Manufacturers and its members highly value the commercial relationships we have with the United Kingdom and the wider EU economy. We remain committed to working closely with our partners in the United Kingdom, the European Union and beyond to ensure disruptions are minimized and that our vibrant commercial and trading relationships we have will continue.

Linda Dempsey

Linda Dempsey

Linda Dempsey is the vice president of international economic affairs at the National Association of Manufacturers (NAM). In this capacity, Ms. Dempsey leads the NAM’s efforts to improve the global competitiveness of manufacturers in the United States by advocating intellectual property protection, increased export financing and the elimination of trade barriers as well as pushing for agreements and treaties to open up new export markets to create jobs. Ms. Dempsey is noted for her experience on a wide range of international trade and investment policy issues.
Linda Dempsey

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