Great Britain and the European Union parting ways today will have major implications for Europe as it moves forward. As an American small business owner, you should be aware of the changes too.
- After 52% of U.K. voters opted to leave the EU in 2016, the international community has been left wondering what will happen when the split takes place today.
- Countless negotiations between the two sides have left large question marks on how the U.K.'s trade relationships will continue moving forward.
- Once the exit is complete, economists expect the British pound to decline in value, resulting in a potential drop in sales for U.S. businesses.
After years of contention, the culmination of Brexit is a watershed moment that will have major implications for the United Kingdom – and the world – for years to come. As it takes its final steps out of the European Union today, the U.K. will face political and economic uncertainty as Parliament irons out the kinks. As Great Britain treads across uncharted territory in a post-Brexit reality, international business, including your small business, could feel the ripple effects.
As an American small business owner dealing with your own country's political landscape, you might not have paid much attention to Brexit over the years. Since its initial referendum vote in 2016, in which 52% of U.K. voters approved the measure, Brexit has gone through multiple iterations as two prime ministers have tried to broker a deal with the European Parliament to establish a favorable outcome for the country.
"Brexit is unique in its scope and complexity," said Tim Maloney, partner at international law firm Dorsey & Whitney and head of its London office. "It affects businesses across all sectors. No two businesses face precisely the same challenges; everything depends on the nature and footprint of their operations, suppliers and customers."
For years, former Prime Minister Theresa May tried to make it so the U.K. could leave the EU with a trade deal so as not to leave citizens and businesses in the lurch. After multiple failed attempts to broker a deal, May was removed from office and Boris Johnson, a largely Trumpian replacement, took up the mantle. As prime minister, Johnson has pushed for the country to leave with or without a deal, though negotiations are ongoing.
With Brexit once again at the forefront, there are some things you should know as an American small business.
It's too late to prepare, but there's still time to act
If your small business has ties to the U.K. in any way and you haven't done anything to prepare for what comes next, then you're too late to make any proactive adjustments in the immediate term. The U.K. will formally leave the EU today by 11:01 p.m. GMT.
Businesses of all sizes in all sectors that have business ties to the U.K. have been running worst-case scenario tests for months, if not years. According to S&P Global, a survey of early 2019 earnings calls showed some of the ways U.S. companies were planning to cope with the change. Those actions included one snack food company renting more logistical equipment and boosting inventory, and a lab equipment manufacturer moving its production out of the country over time.
While the immediate deadline is up, experts like Maloney stress that time hasn't necessarily run out, as the U.K.'s transition period out of the EU will end on Dec. 31, 2020, with the possibility of two extensions, though it's unlikely those will happen.
"In the immediate term, it will remain 'business as usual,'" Maloney said. "During [the transition period], whilst the U.K. will no longer be a member state of the EU, it will continue be treated as a member and will continue to participate in the single market."
Brexit will bring massive changes to U.S. business
As the U.K.'s self-ousting from the EU becomes more concrete, the change will require new trade agreements. As a longtime ally and trade partner, the U.S. is one of the entities that will have to go back to the drawing board with the U.K.
New customs regulations could mean shipping delays as products wait at the port, resulting in lost revenue. Contracts will have to be redrawn and intellectual property protections reassured, according to the Harvard Business Review. If your small business deals in any of these areas, you can expect to experience some level of inconvenience or hardship as a result.
Factoring in that all those changes at the U.K. level could also take place with the EU, you may have a situation where you have to create entirely new agreements with the multinational organization.
"If your company does business with the U.K. or EU, look out for new trade agreements over the next couple years," wrote trade finance firm Harper Partners. "But know that both entities are economically incentivized to have strong, fruitful relations with the U.S."
While the U.S. and U.K. governments have both said they'll hammer out a trade deal as quickly as they can, Maloney said that is unlikely.
"The prospects of a U.K./U.S. trade deal seem even more remote either in the short or the longer term, in spite of the President's warm words in Davos and even though it represented one of the main reasons for the U.K. leaving the EU," he said. "This is the first trade deal the U.K. has negotiated in 40 years. The U.K. will be negotiating with experienced hard-nosed U.S. trade officials, who will drive a hard bargain and seek to pry open U.K. markets.”
Not all the changes will be bad for U.S. businesses
While there's a lot for American small business owners to be concerned about with Brexit, some things may end up in your favor.
If your company imports goods from the U.K., you will likely see associated costs drop in the future, as the worth of the British pound falls in favor of the dollar. In fact, those cost reductions may have already taken place. Lower costs are also likely to take hold in the loan sector. Therefore, if you need to borrow money from a British bank, now's the time to do it, since rates are lower than they were before the Brexit announcement.
While trade negotiations between the two countries may take some time to iron out, the U.S.'s stronger position means it could secure a sweetheart deal from the British. If that's the case, businesses of all sizes will stand to benefit. Tariffs between the two countries are already one area that will likely change, with leaders on both sides committing to a redrawing of the lines. President Donald Trump has offered over the years to strengthen ties with the U.K. in the event that it leaves the EU without a trade deal, extending that offer to both May and Johnson.
As Brexit evolves over the coming months and years, countless people and businesses will feel its impact. How it will impact operations like yours remains to be seen.