This week’s blogs have focused on the biggest events shaping global trade and investment. We discussed the latest WTO report on trade development, which noted a 47% increase in trade-restrictive measures from its members. On Tuesday, we covered the growing trend of protectionism in detail. This is being fueled by various factors, including rising anti-globalization sentiments and countries’ desire to protect themselves against multilateral trade agreements.
One of the hot topics that has cropped up time and time again is the Brexit referendum. Today, we are going to concentrate on comments made by U.K. Secretary of State for International Trade Dr. Liam Fox. He made a surprise appearance at the Sage Summit in Chicago this week to answer questions on life after Brexit.
Global Trade Deals
The Sage Summit is the largest gathering of small and medium businesses in the world. It attracts around 15,000 SME owners and managers from various continents. It’s staged by the UK-based software company Sage and, naturally, the United Kingdom’s decision to leave the European Union has been a major talking point at this year’s event.
Dr. Fox was elected to his position by Prime Minister Theresa May following the Brexit vote. In his speech to the Sage Summit attendees on day one, he highlighted three main reasons for Britain’s historic decision:
- To make investment in the U.K. more attractive.
- His government believes investment levels will increase, more than expected after they leave the EU because of its skilled workforce.
- Corporate tax rates can be lowered even further after they officially leave the EU in two years’ time.
The main takeaway from Dr. Fox’s speech was his comments on the trading relationship between Britain and the United States. He said Britain planned to strengthen transatlantic commerce by establishing new U.K. offices in Raleigh, Minneapolis and San Diego, Denver and Seattle.
He rejected the suggestion that the U.K. will lose out on inward investment. He said their relatively low company taxes, skilled workforces, language and strategic position would continue to attract investors. Softbank’s £24 billion acquisition of chip designer ARM was cited as evidence of this.
The IT sector will be a major part of the U.K.’s trade missions. Fox revealed that more than 300,000 new jobs have been created by new companies since 2010, with a significant number coming from the IT sector.
More Questions Than Answers
However, there were a lot of questions left unanswered for companies that are currently trading regularly with Europe, or those who have aspirations to do so. Dr. Fox spoke about the jobs created by new startups in Britain, but spent very little time discussing the impact Brexit would have on these startups. Will internationally minded entrepreneurs continue to base themselves in the U.K., or will it become increasingly difficult for them to operate in a country outside the single market EU?
The customs union question also caused some confusion. Earlier this week, Mr. Fox and Downing Street seemed to differ on whether Britain would remain within the EU’s customs union. There is still no clear answer on this, and it will need to be addressed before the UK can enter into any negotiations over trade deals.
Dr. Fox seemed to suggest Britain would pull out of the customs union, but Downing Street has since clarified these comments, saying no decision had been made. Operating outside of this union would create a unique situation in Northern Ireland, with goods coming from the Republic of Ireland being subject to border restrictions and checks.
Post Brexit Fallout
While Dr. Fox pointed out the positives of the Brexit vote to the SME’s at the Sage Summit, the British economy has been rocked by job losses at one of its largest banks. As reported by Reuters, Lloyds Banking Group said it would cut 3,000 jobs as it prepared for a Brexit-related slowdown.
They are not the only ones. British biggest car dealership Inchcape has predicted growth in new car registrations will fall, while Ford’s Chief Financial Officer Bob Shanks said the Brexit vote had cost the company about $60 million in the second quarter.
Britain's property market has also been hit by the referendum. Shares in housebuilders plunged while investors pulled out cash from commercial funds, forcing many to be suspended.
It will be interesting to see how the situation develops over the coming months. For now the issue looms in the background as we wait for the U.K. to trigger Article 50. Theresa May is expected to announce before the end of the year whether Britain should leave the customs union. It is clear from Dr. Fox’s comments that he wants Britain to be free from the restrictions of the customs union to negotiate new trade deals around the world.
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