"Home thoughts from abroad" - TIAG Members talk the possible economic effects of Brexit

As members of TIAG – The International Accountancy Group – Old Mill (Somerset, England) have access to accountants from around the globe many of whom are now known personally to the firm.

Old Mill wanted to know how a few viewed the Brexit vote from the outside and asked them four key questions around the possible international trade implications for Old Mill's clients.

brexit oldmill

Below are the answers from five accountants from different parts of the world.

  • Russell Brown (“RB”) of Lehman Brown, in Shanghai, China
  • Frits van Ginneken (“FvG”) of Witlox VCS in Breda, the Netherlands
  • Felipe Pestana ("FP") of Grupo Planus, in Rio de Janeiro, Brazil
  • Kurt Baker ("KB") of ESV Accounting and Business Advisers, in Sydney, Australia
  • François Lamy (“FL”) of Actheos in Paris, France

What is your view of the UK’s current standing in the world economy (and future prospects) following the Brexit vote?

RB – Very positive for UK trade with the rest of the world. China has been keen to establish a free trade agreement with Europe but without much success; with Brexit it sees an opportunity to build a stronger trade relationship with the UK.

FvG – The Brexit vote could have two economic outcomes. Much will depend on the future trade agreement with the EU. The UK trades a lot with EU-parties and the EU will not be keen to provide the UK with the same privileges as its own members. This could lead to a reduction in the total of current exports. On the other hand, the UK may be able to establish better trade agreements with the rest of the world.

FP –  The UK will probably suffer as a result of adjustments to their commercial relations with EU countries from within continental Europe, but on the other hand and in the longer term Brexit may force the UK to seek more bilateral negotiations with other nations resulting in the creation of new and bigger markets with non EU countries.

KB – Having got over the initial shock of the Brexit result and the perceived economic and commercial drama, the reality will be that the UK will continue to be a strong player in the world economy.  There will almost certainly be a period of impact / downturn in consumer confidence and investment but with such a sound currency, large base population, business know how and a proper strategic plan to move forward , the UK’s standing is such that it should remain as one of the world’s wealthiest trading nations.

FL – UK trade with the EU will suffer unless the agreed terms of Brexit continue to provide good access to EU markets. What is clear is that the process of negotiation will be long and involved!

What should UK exporters to your country be doing now, to secure their current and future position?

RB – Visiting, finding distributors for products (local partners), and learning about the vast market opportunity that exists in China for UK products.

FvG – For now the future is uncertain. UK exporters could think of moving their business (or part of it) to the EU. Much will depend on the political willingness to establish a profitable trade agreement with the EU.

FP – Brazil and the UK have had a history of vibrant cooperation since 1808 when Brazil became a United Kingdom with Portugal (gaining independence in 1822). Now more than ever, UK businesses should be actively present in Brazilian (and South American) markets, expanding upon existing bilateral trading agreements and increasing both the number and size of business opportunities within this market.

KB – Whilst Australia has strong and enduring ties with the UK, the reality is that the AU market only represents a fraction (1.4%) of the UK’s total exports.  It is unlikely that this will change in the future however it is possible that in this period of uncertainty for UK exporters, the AU market (and indeed the Asia Pacific region) may present itself as an attractive, stable alternative market for goods, services and investment (helped by potential reductions in EU related import tariffs and the possible scope for an AU-UK “Free Trade Agreement” which is already being touted).    

FL – UK exporters should set up trading and sales subsidiaries in Euroland and take advantage of recent movements in the £:€ exchange rate (which has moved in favour of UK exporters).

How do businesses in your country view their export opportunities to the UK, following the Brexit vote?

RB – Unchanged and very positive, and if the countries could arrange a free trade agreement then China sees more and more Chinese companies exporting or investing into the UK.

FvG – The UK is our third largest trading partner. The Brexit vote could lead to trade barriers which could lead to a reduction of our exports to the UK (and in imports from the UK).

FP – Brexit should not have any significant effect on Brazilian exporters to the UK or business between the two nations. Mercosul (the South American trading bloc) has however, lost a very important partner in their negotiation of a possible free trade agreement with the EU. As South American commodities are predominantly agricultural, France is heavily resistant to a free trade agreement and as consequence of Brexit, the UK will no longer be able to moderate (with their liberal view on commerce) and exert a softening influence from within the EU.

KB – The immediate concern for a lot of AU exporters to the UK really hinges around how the UK can facilitate and enhance access to the EU market.   Broadly, the hoped for Australia-EU Free-Trade Agreement becomes a lot more complicated and at the same time less attractive.  As our 8th largest export market (2015) the UK represented approximately 47% of Australia’s total exports to the EU (no other EU country featured in Australia’s top 15 export markets) so there is clearly going to be a ripple effect that will need to be considered (functionally as well as in terms of costs / duties etc).

What may well change is the pattern of AU businesses using the UK as a gateway into the EU market – for example, they may now choose to invest in a continental State or Ireland (rather than the UK). With AU exporters also experiencing a period of “rebalancing” in the aftermath of the mining boom, there will need to be further contingency planning within their businesses, on how to deal with the impact of Brexit and the potential additional costs and “red tape” that may arise within their supply chain / market.  

FL – Very badly; the movement in exchange rates means that it will be more expensive for British customers to purchase French goods and services (to possibly be compounded by an increase in trade tariffs between the UK and EU?).

What impact do you see on world trade following the election of Donald Trump in the USA?

RB – If the rhetoric is taken away and whether Mr Trump likes it or not, the USA and China are equally dependent upon each other and therefore, whilst some products will possibly incur anti-dumping tariffs and import duties as part of inter-Governmental sparring, the majority of businesses will continue to conduct business as usual.

FvG – Since the election of Donald Trump we haven’t seen a major crash on the exchange markets (although GBP £ sterling has weakened). For now we have seen an increase in the buoyancy of global markets which is good for Dutch pension funds and insurers. In the longer term, we will have to wait and see if Donald Trump will actually implement protectionist policies and access to US markets. The proof of the pudding is in the eating.

FP – We expect the US to become even more resistant to Brazilian and South American exporters, requiring even more action from within the WTO. It remains to be seen how much of Mr Trump’s speeches are demagogic and what he actually now goes on to deliver. But if only half of what he suggests is delivered and the promise of increased US isolationism materializes, it will (despite short and medium term damage) offer great opportunity to other Countries that are able to put together their own bilateral trading agreements, filling the gap left by increased US isolationism.

KB – Even after sifting through the rhetoric of a bitter and long drawn out political campaign, it is difficult to draw much clarity around the economic and trade policies of Mr Trump and the Republican party.   There is a real fear that Australia (heavily exposed to global trade flux) could be significantly impacted if Donald Trump’s economic and trade policies result in increased global tariffs, and greater restrictions on imports and exports around the world.   The damage that could be caused by say a trade war between the US and our largest trading partner China, would be immeasurable to our economy.

FL – If the US administration implement a policy of increased protectionism (reflecting what was a major theme in Donald Trump’s electioneering) then future exports to the US will become more difficult to administer and more expensive as a consequence of a possible increase in tariffs.

In responding to the questions we asked, our friends in TIAG have shared their personal views. These reflect their extensive experience of working with international businesses and clients and do not necessarily reflect the official view of their respective TIAG member firms.