Nation-Now Brexit fallout shakes up global trade
The flow of trade in Europe is set to enter a prolonged period of disruption after United Kingdom voters opted to exit the European Union.
The move is expected to require the U.K. to renegotiate trade deals with the 27 other members of the EU, with whom the U.K. has enjoyed expeditious market access.
Some 54% of British goods trade is conducted with EU member countries, according to a 2014 report by the Centre for European Reform, illustrating the sweeping effects of the shakeup.
Though it will take about two years for Britain to negotiate terms of its exit from the EU, dubbed a “Brexit,” it will likely take longer to reach new trade accords, Oxford Economics said.
That means that commercial activity between the U.K. and EU member countries will be governed under World Trade Organization rules following its exit. “The British people have spoken. The WTO stands ready to work with the UK and the EU to assist them in any way we can,” Roberto Azevêdo, director-general of the WTO, said in a statement.
While the EU brags that about 70% of goods enter the bloc without tariffs, a global wave of populism could give rise to a new degree of populism that threatens trade.
Negotiations between the U.K. and EU could “prove difficult, given that EU leaders will not want to set the precedent of an easy withdrawal for other countries that could reconsider their status, such as Denmark,” research firm IHS said Friday in an analyst report.
The Brexit could also jeopardize the Transatlantic Trade and Investment Partnership, a trade deal between the EU and the U.S.
“We urge the authorities in the U.K. and Europe to work collaboratively to ensure a smooth transition to a new economic relationship between the U.K. and the EU, including by clarifying the procedures and broad objectives that will guide the process,” Christine Lagarde, managing director of the International Monetary Fund, said Friday in a statement.
Amid swirling uncertainty over the impact of Brexit on trade, “we think that the U.K.’s economy will clearly be the main victim, but also that the shock for the Euro area and the global economy is likely to be significant,” Bank of America Merrill Lynch Global Research analysts said. “Policy responses will be needed beyond the ‘first-aid’ remedy market disruption normally requires.”
Alternative options for the U.K. include membership in the European Economic Area, the route chosen by Norway, or what the Centre for European reform described as “a basket of bilateral agreements such as that which exists between Switzerland and the EU.”
One significant industry that will be impacted by shifting trade deals is autos. About 9 in 10 vehicles sold to U.K. consumers are made outside of the U.K., according to LMC Automotive. And about 8 in 10 vehicles made in the U.K. are exported, about half of which end up in other EU countries.
Stocks of major automakers and suppliers with a heavy presence in Europe plunged on Friday. Fiat Chrysler was down 12.6%, Volkswagen down 10%, BMW down 7.5% and Daimler down 8.2%.
“As the U.K. looks to unpick its current trading relationship with the EU, the uncertainty and barriers to trade risk hitting investment in the U.K. automotive production complex,” LMC Automotive said Friday in a research note.
IHS Automotive analyst Ian Fletcher said in a research note that he”anticipates that this will lead to a reduction in our current light-vehicle sales forecast” for the U.K.
The ripple effects for other trade deals began to come into view Friday, as well. For example, the EU’s proposed free-trade agreement with Japan, which has been under negotiation since 2013, will be difficult to reach this year following the Brexit vote, Kyodo News reported.
Follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey.