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James Dyson, a billionaire British business executive and inventor, announced this week that he was relocating his company headquarters from the United Kingdom to Singapore.
Dyson said the move wouldn’t result in job cuts in the UK — the company is just sending its executives to Singapore, where much of its production is already based.
But Dyson’s announcement still generated some fierce backlash amid the raging debate over Brexit.
Dyson was a prominent supporter of Brexit, and his critics interpreted his latest move as the ultimate show of hypocrisy: a billionaire who pushed to leave the European Union, and then fled once the entire process veered toward catastrophe. It didn’t help that Dyson announced late last year that he was investing in an electric car company in Singapore, or that the EU had just happened to ink a brand-new free trade agreement with city-state.
A Dyson executive denied the move had anything to do with Brexit and said it the move was about “future-proofing” the company.
But Dyson isn’t the only one “future-proofing” these days. Other companies and financial services have started shifting their businesses elsewhere, or making other preparations for the UK-EU split.
The uncertain political landscape is making it increasingly difficult to do business in the UK. Forecasts suggest the eventual UK-EU split will hurt the UK’s economy no matter what. But the possibility of a calamitous no-deal Brexit — where the UK and crashes out of the EU without any withdrawal agreement on March 29, 2019 — would be disastrous to the UK’s economy. It could be a hardship on the level of the 2008 financial crisis.
And Europe could stand to gain.
Cities such as Frankfurt, Dublin, and Paris are trying to woo firms from London, currently the financial capital of the continent. According to a recent report, banks have already shifted nearly $1 trillion in assets from the UK to other European countries ahead of the split. Major US banks such as JP Morgan, Goldman Sachs, and Citigroup have all reportedly indicated that they’re shifting billions in assets to Germany.
Other international companies have announced their intentions to pack up: Sony said Wednesday it would take its European headquarters to Amsterdam, and Panasonic already announced in August it would move to the Dutch capital. A more than 180-year-old British ferry and ship operator will fly the flags of Cyprus, rather than the UK, on its fleet.
Firms staying behind, particularly manufacturers, don’t know if they’ll be able to get supplies, so they’re hoarding inventory, which is causing its own financial strain. Drugmakers are buying up emergency supplies. Tesco, one of Britain’s largest grocery chains, is getting extra fridges to stock up on frozen foods. A pet chain is stockpiling millions in goods, and so are automakers such as Bentley and BMW.
Storage companies may be the one type of business to benefit. The UK Warehouse Association told the Irish Times this week that the UK is running out of storage space as companies try to prepare for the still very real possibility of a no-deal Brexit.
Even if the UK had a Brexit deal, businesses would likely flee. But a no-deal Brexit would be horrendous.
The UK’s biggest problem right now is that the government still hasn’t figured out how it will leave the EU.
Parliament resoundingly rejected last week Prime Minister Theresa May’s Brexit deal, which would have allowed for a transition period to ease the shock of the breakup. May doesn’t really have a Plan B, and the UK is careening toward the March 29 deadline without a deal in place.
A no-deal Brexit would deliver an immediate and unpredictable jolt to the UK economy. The EU and the UK have been integrated for decades through the single market, which allows for the free movement of goods, services, capital, and people; and the customs union, which enables frictionless and tariff-free trade among the member states, which collectively form trade agreements with the outside world.
These benefits evaporate overnight in the event of a no-deal exit. The UK loses its favored status, and becomes a so-called “third country” — meaning it’s treated like an outside country by the EU and reverts back to World Trade Organization (WTO) rules. What’s more, the UK won’t immediately have any trade deals with any other countries (because those were all governed by the EU previously).
Put another way, all of the goods and foods that were previously traded easily among EU states will now become subject to tariffs and lengthy customs checks at the UK border, because the UK and the EU will be following different rules. This is the reason companies are stockpiling chocolate and cat food.
These changes don’t just affect the trade of physical goods — also services, such as banking. As Vox’s Zack Beauchamp in 2016 the harmonization of laws and regulations across the EU means that companies can maintain a single corporate headquarters for all of Europe. And because English is the world’s most widely spoken language, many foreign companies have located their European operations in London.
But that becomes complicated if the UK becomes a “third country” — it will lose its ability to sell services to all of the EU at once. So, firms and companies will have to relocate or move elements of their business to other EU countries to protect those European operations.
This explains why some companies are deciding Dublin or Dusseldorf suddenly look a lot more attractive right now — and a no-deal Brexit would likely cause even more disruptions, if it happens.
In short, companies and firms are planning for the worst, and the longer it takes for the UK to figure out what it wants (what it really, really wants), the more likely it is that businesses will leave.
There is still time, however, for the UK to pass May’s deal, or a version of it, which would set up a 21-month transition period (which can be extended once). During this time, the UK and the EU are expected to work out the terms of post-divorce relationship: trade, security, etc.
This is where, in theory, the UK and the EU would be able to decide all the particulars on how to regulate cross-border trade and financial services, whether through a free-trade deal, or even through a closer relationship with the customs union or single market.
But if the past two years of Brexit negotiations have taught us anything, it’s that this is going to be a torturous task. That’s led to fears that even if a no-deal exit is avoided, the EU-UK breakup will force companies to rethink their operations in the UK and EU writ large. This would swap out abrupt chaos for slower changes — possibly an exodus that takes place over years.
In other words: There’s likely a lot more future-proofing to come.
