As Brexit barrels ahead – what’s the impact for business, finance, and the UK’s economic future?
UK Prime Minister Boris Johnson led the Conservative Party’s sweeping victory last month with a campaign to leave the European Union (EU) by January 31, 2020. The Brexit story has been told and re-told countless times in political terms – but now comes the economic and social reality. In practical terms, Brexit is just starting. Free trade agreements with the EU and U.S., the future of London as a financial center, the impact for companies and people, and the real, day to day changes in the country’s business climate, are all still up in the air.
Caroline Atkinson, former Deputy National Security Advisor for International Economics to President Barack Obama and former Head of Global Policy for Google, joins Altamar to explain the complex economic, financial, and business ramifications of Brexit. Atkinson has also held senior roles at the International Monetary Fund, the U.S. Treasury Department, and the Bank of England, and worked as a journalist for The Washington Post, The Economist, and The Times of London.
Johnson’s first major obstacle will be to negotiate new trade agreements with the EU and the U.S. Easier said than done, says Atkinson: ”[Johnson] has said that he just wants a slim deal on trade: zero tariffs, zero quotas. And just recently, Ursula von der Leyen, the Commission President now, said, ‘fine – zero tariffs, zero quotas, and zero dumping.’ And the real issue is: what does “zero dumping” mean?”
The lack of clarity is just one hurdle to solving the intricacies of Brexit in 2020. Atkinson further explains that the nature of deeply integrated supply chains in today’s global economy will only compound any deal’s complexity: “A car manufactured in the United Kingdom that now can just go easily and be sold in France or German, consists of many different parts. So what kind of standards will the car manufacturers have? What kind of standards will the food industry implement? What kind of standards will the financial services industries implement? And what will the EU accept?”
Brexit also has the potential to profoundly change London as the world’s global financial center as it isolates itself from Europe’s markets. “Many people think that the ECB (European Central Bank) and the EU will not allow a certain core element of Euro transactions to take place in London, even if there is a backing off from ‘Singapore on the Thames’…The ECB will not want to be in the position of bailing out institutions that are located in London.” It’s hard to imagine now though, as “Maybe there won’t be a truly global financial center in Europe, because there isn’t another alternative” in Europe that can match its financial markets and global reach today.
As far as simultaneously negotiating a trade agreement with Trump Administration, Atkinson explains that it is “overly optimistic to think of having a U.S. trade deal, in my view, in any short timeframe.” Sorting out the terms of a deal is further complicated by the fact that the U.S. and the U.K. have different regulations and standards across the supply chain for everything from chicken to finance. “There are very deep supply chains: fresh food is one thing, manufactures are others. These would get pulled apart if you had a deal that did not incorporate some recognition of mutual standards.”
At the end of the day, the question of how Brexit will change the U.K. in real terms will depend on how close the country remains with Europe as it shapes its new economic reality. “Normally, when you’re negotiating relations between countries and a trade deal and a services deal, you start from two different places and you decide how much to converge. In the case of the UK and Europe, you’re starting from being together and you’re wondering how much to diverge.” The realities of a hard split could change the feelings of Britons: “Every bit of divergence, especially if it comes suddenly, will make it harder for people in the UK to do the trading and work in Europe that they’ve done before. So, I would bet that Boris Johnson will try to limit any divergence.”
Listen in to learn more about the economic ramifications of Brexit – available for download here.