Brexit

No-deal Brexit? Yes, it’s still possible

Stephen Beard Oct 2, 2020
Heard on: Marketplace
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Talks between the U.K. and the European Union to work out a free trade deal by Oct. 15 have not gone smoothly. Above, an employee hangs a Union Jack at EU headquarters in Brussels in 2019. John Thys/AFP via Getty Images
Brexit

No-deal Brexit? Yes, it’s still possible

Stephen Beard Oct 2, 2020
Talks between the U.K. and the European Union to work out a free trade deal by Oct. 15 have not gone smoothly. Above, an employee hangs a Union Jack at EU headquarters in Brussels in 2019. John Thys/AFP via Getty Images
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The European Union is by far the United Kingdom’s largest trading partner.  Last year, the Brits sold 43% of all their exports to the bloc. Meanwhile, more than 50% British imports — $470 billion worth — came from the EU. So spare a thought for the British companies that depend on that trade. They’ve struggled through the turmoil caused by COVID-19, and now they have Brexit to contend with.  

The U.K. formally left the EU at the end of January, but it remains trading freely in the European Single Market until the end of December while it negotiates a new relationship with its former European partners. The talks have not gone smoothly. The two sides have accused each other of foot dragging and bad faith, and the Oct. 15 deadline for a deal is looming. Without an agreement, all kinds of mayhem could unfold.

In what it calls a “reasonable worst-case scenario,” the British government has warned of 7,000-truck lines and long delays at the main English Channel port of Dover if, after decades of free movement, tariffs and checks are imposed at the end of this year.

David Catt, a fresh fruit and vegetable importer based in the southern county of Kent, told the BBC that he’s very worried.

“Produce has to be here on time”

“We put an order in this morning for Holland, which will be here at 2 o’clock tomorrow morning,” Catt said. “Now if that doesn’t arrive at 2 o’clock tomorrow morning, I’ve got no produce to load onto my vehicles. The produce has to be here on time, otherwise the whole of my business just collapses.”

Exporters to continental Europe are anxious, too. Lars Andersen, the CEO of My Nametags, a small company based in southwest London that makes personalized stick-on name labels for children’s clothing, is bracing for Britain’s departure from the European Single Market without a trade deal.   Andersen ships 40% of his labels to customers in EU countries.

Lars Andersen heads a company that makes nametags for children’s clothes. “There might be tariffs to be paid on each label,” he says. (Courtesy Mimisse Beard)

“There might be tariffs to be paid on each label. There might be delays in custom declaring products. There’s additional hassle. My European customers might start asking themselves: Why not order from a local company?” Andersen said.  

To keep those European customers, he faces a stark choice: shift his company to continental Europe but then have the same problem with his British customers, or set up an additional operation within the EU. He finds that equally unappealing.

“It’s a huge cost and a pain in duplicating what we’re doing,” he said.

Surviving “extinction” events

It would be a real pain for a small $6 million-a-year company that’s just about recovered from the slump in business due to the pandemic.

“We’ve just survived one extinction event,” Andersen said. “And now we have this big challenge of possibly having huge costs. It’s a big problem for us.”

Some exporters to the EU, however, are shrugging off the anxieties over a messy exit from the single market. Mark Nunan, head of Sarginsons Industries, makes lightweight, aluminum components, mainly for the automotive industry. He exports 25% of his high-margin, high-specification products to the EU, but he’s unfazed by the prospect of trade friction with continental Europe.   

Mark Nunan is chairman of Sarginsons Industries. Change brings opportunity, he says. (Courtesy of Mimisse Beard)

“All the issues I see for Brexit are short-term issues,” Nunan said. “They will be solved.”

He thinks the turmoil at the ports won’t last because it wouldn’t be in Britain’s or the EU’s interests to let it continue. And his European customers have offered to pay half of any extra costs and tariffs incurred. Nunan voted for Brexit in the referendum four years ago and he says he’s even keener today on Britain’s departure because it has forced him to widen his horizons.

“When Brexit was first announced, we decided that we had to look to the global market just in case there was no free trade agreement and all the predictions of doom and gloom were correct. We’ve picked up two clients, one in China, one in the USA, that have actually changed the way we do business,” he said.  

Change and opportunity

One of those clients is making autonomous vehicles, the other is making electric cars — real growth markets, he said. Nunan clearly thrives on disruption.

“Opportunities abound when everything changes,” he said. “And right now, Brexit, electrification, autonomous vehicles, China-USA friction … all this represents massive change.”  

And opportunity for sure. But Nunan admits that change can be a source of worry. For British companies that need to trade with the huge market on their doorstep and don’t have the option of trading much further afield, the coming weeks could be very worrying indeed.

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