By Megan Doyle
Whether the U.K. chooses a “hard” or “soft” exit may determine the degree to which trade policies are affected, and the uncertainty presents a challenge for many U.S. companies looking to prepare for potential changes ahead.4 Even still, “the U.K. remains a critical market for American exports of goods and services and a key destination of U.S. foreign direct investment,” says Export.gov.5
Looking ahead, implications for U.S. businesses exporting to the U.K. appear to depend on how Britain ultimately exits the EU. A “hard” or “no-deal” exit without established trade agreements could introduce greater complexity to trade for U.S. businesses, shaking up import-export trade with tariffs, taxes, procedures, regulations, and delays.6
Among those who could be most affected are the thousands of U.S.-based businesses that use the U.K. as a gateway into EU markets, as new tariffs and regulations add both costs and complexity to the process of exporting from the U.K. to EU.7 Added complexity could also cause delays that further increase the costs of doing cross-border business, and even leading to shortages of foods and other goods.8,9
What’s more, the dollar’s recent strength could make it more expensive to export to the U.K. As of April 2019, the average USD-GBP exchange rate stood at $1 USD = GBP .7678, compared to .7111 the previous April, and .6757 on the date the initial Brexit vote passed (June 23, 2016).10,11 The pound’s volatility is expected to continue alongside a strong dollar as Brexit proceedings are deliberated.12
While the U.S. stood as the U.K.’s number one export market in 201813, the U.K. was the U.S.’s seventh-largest import partner for goods.14 The U.S. imported $60.8 billion in goods, up $7.8 billion (14.6 percent) from 2017.15 Top imports included vehicles, machinery, pharmaceuticals, and mineral fuels. Services imports totaled $60.4 billion in 2018, up 6.1 percent from the previous year.16
Talks of a U.S.-U.K. trade deal have been in the works since Britain announced its planned exit, and in February 2019 the U.S. government published a summary of specific trade negotiation requirements for the U.K. The document addressed a number of objectives, but primarily covers tariff reductions and ensuring shared standards and regulations between the two countries.17 According to the U.S. Congressional Research Service, as of April 2019 prospects for a free trade agreement were mixed due to uncertainty and fundamental disagreements between stakeholders.18 The U.S. harbors a population of 328.9 million19 and a GDP of $19.485 trillion20 compared to the U.K.’s 66 million21 inhabitants and GDP of $2.638 trillion.22
On the bright side for U.S. businesses, a weaker pound has made it cheaper for U.S. companies to import British goods.
So far, the U.S. has continued to do business in the U.K. and seek foreign direct investment (FDI). According to most recent statistics, U.S. FDI in the U.K. reached $747.6 billion in 2017, a 9 percent increase from the year before.23 The main areas of FDI include manufacturing, finance and insurance, and information services.
It’s worth noting that due to present uncertainty, small and midsize enterprises (SMEs) may take the brunt of the administrative and regulatory burdens of Brexit, especially for businesses who use the U.K. as an entry point into the EU.24 Thus, many businesses are creating contingency plans, such as establishing new business units in the EU, revamping supply chains, stockpiling goods, and hedging against foreign exchange risk. Several government agencies and other advisory services are recommending businesses follow detailed checklists to cover their bases in the event of any Brexit outcome.
Meanwhile, U.K. economic growth has been slow since the referendum. GDP expanded 1.8 percent year-on-year as of March 201925, and the annual inflation rate was 1.9 percent, close to U.K.’s target of 2 percent.26 Income per capita has fluctuated in recent years, and as of 2017 stood at $40,600—nearly $8,000 lower than its peak in 2008.27 But things may be looking up as U.K. wages have begun to rise at their fastest pace in a decade, according to the Deloitte Consumer Tracker Q1 2019.28 Consumer spending and confidence have also grown, but are expected to slow due to Brexit uncertainty.
Regardless of the current uncertainty, it may be worth noting that the U.K. is still fairly easy to do business with in the grand scheme of things. The U.K. is currently ranked 9th out of 190 countries in the World Bank’s Ease of Doing Business index. The main obstacles for doing business in the U.K. include registering property, getting credit, enforcing contracts, and trading across borders.29
Overall, the U.K. ranks 15th out of 157 countries in the World Economic Forum's 2018 Human Capital Index.30 The Human Capital Index measures five indicators to forecast the amount of human capital a child can expect to attain by the time they turn 18. Indicators include child and adult survival rate, and expected years of schooling. As of 2016, the U.K. ranked 8th of 136 countries in the WEF's Global Enabling Trade Index.31
As the U.K. figures out its plans to exit the EU, many businesses are wondering how Brexit will impact trade policies and, hence, their business with the U.K. Many companies are developing contingency plans to prepare for any scenario.
Megan Doyle is a business technology writer and researcher based in Wantagh, NY, whose work focuses primarily on financial services technology.
1. “United Kingdom,” Office of the United States Trade Representative; https://ustr.gov/countries-regions/europe-middle-east/europe/united-kingdom
3. “United Kingdom – Market Overview,” Export.gov; https://www.export.gov/article?id=United-Kingdom-Market-Overview
6. “What Will Change for Me?,” DHL; https://www.dhlexpress.nl/en/brexit
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20. “United States,” The World Bank; https://data.worldbank.org/country/united-states
21. “United Kingdom,” The World Bank; https://data.worldbank.org/country/united-kingdom
23. “United Kingdom,” Office of the United States Trade Representative; https://ustr.gov/countries-regions/europe-middle-east/europe/united-kingdom
24. “No-deal Brexit Plans Reveal Worrying Outlook for Small Importers and Exporters,” Business Advice; https://businessadvice.co.uk/supply-chain/international/no-deal-brexit-importers-exporters-trade/
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27. “United Kingdom,” The World Bank; https://data.worldbank.org/country/united-kingdom
28. Keep calm and carry on: The Deloitte Consumer Tracker, Deloitte; https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/consumer-business/deloitte-uk-consumer-tracker-q1-2019.pdf
29. “Ease of Doing Business in United Kingdom,” The World Bank; http://www.doingbusiness.org/en/data/exploreeconomies/united-kingdom
30. United Kingdom, The World Bank; https://databank.worldbank.org/data/download/hci/HCI_2pager_GBR.pdf
31. “Global Enabling Trade Report 2016,” World Economic Forum; http://reports.weforum.org/global-enabling-trade-report-2016/economy-profiles/#economy=GBR