Brexit's Impact Is Already Being Felt Across International Supply Chains
After our recent article about the ongoing US/China trade war, it only seemed appropriate to compose a follow-up piece featuring that other albatross around the neck of international trade - Brexit.
When the UK went to the polls in unprecedented numbers in 2016 to cast its vote on whether the country should remain a part of the European Union, it defied all the odds. A marginal win for the Leave vote sent the UK economy and political system into a chaos from which it has yet to emerge. In the two years which followed, it's fair to say things have not gone well - the UK economy has still not recovered, has yet to secure a withdrawal agreement, and its Prime Minister has suffered the biggest House of Commons defeat in history, and barely survived two votes of no confidence in her leadership.
However, it's not only the UK which is likely to suffer due to this spectacular act of economic self-harm. Brexit is also sending shockwaves through all levels of international procurement and trade.
Brexit and US Procurement
At this point, you may be wondering what Brexit has to do with trade and procurement here in the US. Surely, it's only the UK and the EU which will be affected by the change in their relationship?
Unfortunately, not.
One of the main ways Brexit is going to affect US procurement is through those companies who use the UK as a gateway to the EU.
For many years now - even since the Bush Jr. era - the UK and the US have enjoyed what they have jointly referred to as a "special relationship". This relationship has covered everything from military action and intelligence sharing to political alliances and trade. What this means is that American companies who have wished to access the EU's powerful trading bloc - the Common Market - have been able to do so via the UK. However, after Brexit, this may no longer be possible or economically viable.
"Where US or other non-European businesses maintain a European distribution center in the UK, they should consider the potential for double tariffs on products exported to the UK and then re-exported to the EU27 following Brexit and the UK's departure from the EU customs union," said Legal Director for Bird & Bird LLP, David Gent. "Such products are likely to face tariffs on entry into the UK (subject to any new UK free trade agreement and subject to WTO rules), and then further tariffs under the EU customs union on re-export to the EU27."
This fact will make it more complicated and expensive to use the UK as a trade stepping stone to the rest of the EU and, depending on the nature of the UK's exit from the bloc, may not be practical at all. After all, if the UK crashes out with no deal at the end of March 2019, it will have no access to the common market and therefore no advantageous position over existing US/EU trade deals.
All Doom and Gloom?
Not necessarily.
Donald Trump has stated on numerous occasions that he is a staunch supporter of Brexit and his administration is determined to work hard with UK legislators to help make the process a success. With the ongoing US/China trade war causing its own problems for American procurement, the government is keen to establish strong trading relationships with other countries.
"The UK and the US are agreeing to go forward and preserve our trade agreement," said Trump. "We have a very good trading relationship with the UK and that's just been strengthened further. So, with the UK we're continuing our trade and we're going to actually be increasing it very substantially as time goes by. We expect that the UK will be very, very substantially increased as it relates to trade with the United States - the relationship there is very good."
However, the exact detail and nature of this ongoing trade with the US will depend largely on the exact detail and nature of the UK's exit from the EU - something which has yet to be established.
Final Thoughts
Much of the conversation around Brexit - both from Trump and the UK - is still worryingly vague and opaque. With the Brexit deadline rapidly approaching, procurement businesses need something more concrete to be laid out soon so they can make adequate preparations for the future.
The implications of Brexit is set to be a hot topic at ProcureCon Direct 2019, taking place in July at the Rancho Bernardo Inn, San Diego, CA.
Download the agenda today for more information and insights.