Budgeting for Brexit: The Impact of the UK’s Referendum on US Buyers

Categories : Procurement Goals | Reduce Risk | Evaluate Supply Market | Identify Suppliers | Set Strategy
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Published on : Jun 27 2016

By: IBISWorld Analyst, Sean Windle

In a stunning move that sent world markets into turmoil, British voters ignored pleas from their leaders and much of the global political establishment by choosing to sever ties with the European Union. The political and economic fallout was swift and far-reaching, with Prime Minister David Cameron stepping down and US markets tumbling shortly after the results of the referendum were announced.

Britain’s exit, or Brexit, from the EU also sent the pound plunging to its lowest level since 1985. While the sharp drop in the pound makes British imports comparatively cheaper for US buyers in the short term, it poses a serious long-term threat: disruption to trade.

US companies sourcing British imports face looming uncertainty over the price and availability of a wide range of goods. The United Kingdom is a major exporter of petroleum products, such as hydraulic oil and gasoline, as well as gas turbines, hydraulic motors and other aerospace and industrial equipment and machinery. In fact, the United States imports about $58 billion worth of goods annually from the UK, according to the US Census Bureau, making it our seventh-largest trading partner.

Pending the formal exit process, which could take up to two years, Britain will remain a member of the EU. However, trade relations with the United States will need to be renegotiated once Britain’s separation is complete. Given political gridlock in Congress and the often lengthy nature of trade negotiations, it could be many years before a new bilateral agreement between the two countries is hashed out—in an interview with the BBC in April, President Obama warned it could take up to 10 years. Meanwhile, Britain will face higher trade barriers with the United States.

For now, tariffs, quotas and rules governing trademarks and patents with the UK will remain unchanged; however, these trade mechanics may change with whatever new agreement emerges from future negotiations. IBISWorld suggests that buyers looking to maintain continuity in their supply chains consider alternative sources for any British products. By diversifying their supply chains, buyers are less likely to experience supply disruptions or price volatility associated with Brexit.

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