Damage Control

‘Brexit’: Effects on Manufacturing

The big manufacturing story this week is that cleverly-labeled ‘Brexit’ affair.

In the aftermath of Britain’s decision to leave the European Union, anxiety and uncertainty reign freely. Economic concerns have raised antennae across the globe as the value of the Pound plummeted, the British stock market took an immediate hit, and the affected country and continent scrambled to deal with the aftershock. ‘Brexit’, as it has become known as, is rippling through not only national economies, but specific markets and industries as well. Speculation has already begun on how it will affect the manufacturing sector, both in the United Kingdom and here in the United States.

Some of the main concerns now include whether international businesses should retain UK/European operations; how to keep investors to British-based companies or affiliates, how to foster properly trained individuals in the manufacturing sector; and whether or not tariffs will be implemented, further complicating the trade markets. Certain companies have stalled particulars in their manufacturing plans, such as Siemens. The steel industry and oil in the North Sea could face grave prospects, as well.

Although many commentaries can only offer the pressing questions at the moment, there are certain absolutes:

-Former British Prime Minister David Cameron resigned his post following the British referendum. He has said he will officially leave office by October.

-The EU met for the first time since the vote on Tuesday, at a summit in Brussels. Cameron was still required to attend (since Great Britain is technically still part of the EU) and brief his 27 EU peers on last week’s referendum defeat. There 5.5 million population of Scotland’s strong vote to stay in the EU was overridden by the English, who outnumber them 10 to one, according to Reuters. Britain as a whole voted 52-48 percent to leave.

– The European Council and European Central Bank gatherings both concluded Wednesday, possibly with an outline of the new road map for global economic policy makers.

– On Friday, the first day of July marks the initial release of global manufacturing data for the month of June, including the Institute for Supply Management’s manufacturing index in the U.S. and key manufacturing gauges for China, Japan and much of Europe. Global manufacturing has been sluggish this year, and while the British vote to exit the EU came at the end of the month, the reports could offer clues as to whether manufacturers were already retrenching in anticipation of Brexit uncertainty, as reported by the Wall Street Journal.

-The EU is currently Britain’s biggest trade partner. More than 50% of the UK’s exports go to the EU. Four of Britain’s six biggest export partners are EU Member States, the other two being the US and China.

-The EU currently has 23% of world Gross Domestic Product – the UK only 3.5%.

-For the UK to officially leave the EU it has to invoke an agreement called Article 50 of the Lisbon Treaty. Cameron or his successor needs to decide when to invoke this – that will then set in motion the formal legal process of withdrawing from the EU, and give the UK two years to negotiate its withdrawal, according to the BBC.

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One Response to “Damage Control”

  1. As a British exporter to 25 countries world wide, including the US and Canada, I’m still in shock at the result. I think it’s imprtant to note here that all trade agreements remain in place for at least the next 2 years until the exit negotiations conclude. This means there’s no change to anyone buying from, or selling to, a UK business. There’s a 2 year window following the announcement of Article 50 whereby the UK will need to negotiate new trade agreements with the rest of the world.

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