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July 4, 2016

Brexit casts uncertainty over CT exporters

Illustration | CNNMoney
By Greg Bordonaro

Connecticut's seventh largest trade partner is in a state of economic and political flux casting a sense of uncertainty over in-state exporters to the United Kingdom.

The UK's vote to leave the European Union has left many questioning how the decision will impact the country's trade ties with the United States and rest of the world.

In 2015, Connecticut companies exported $884 million in goods to the UK and it will be those businesses that ship goods to the U.S.' closest ally that will likely be impacted the most by the Brexit vote.

Two of Connecticut's largest exporters — United Technologies Corp. and General Electric — have downplayed the potential negative consequences, saying they hope an orderly, planned exit from the EU will have minimal impact on their business.

Hartford Business Journal reached out to a couple prominent local economists to get their take on the impact of the UK's historic decision to leave the EU.

Peter Gioia, economist at the Connecticut Business & Industry Association, said Connecticut exporters will have to take several things into consideration in the weeks, months, even years ahead.

“The British pound is now devalued compared to the dollar, and that increases the cost of Connecticut goods sold in the U.K.

“In addition, the hundreds of state companies that have used the U.K. as their European base of operations now need to either move or create a second base somewhere in the European Union, like Germany or France, in order to maintain investment relationships with those companies in the EU. That adds costs too.”

Gioia added that longer term, the negatives may be tempered as the UK looks away from the EU to the United States, Asia and former British Commonwealth countries for closer commercial ties.

But there are also threats.

“It's hard to determine how long this decision will impact trade,” he said. “There is a global, not U.S. only, tide against wealth created and sustained by international efforts towards concentrating and (re)distributing wealth within national borders. The psychological tilt towards nationalism away from globalism can have far-reaching implications for years to come. If your company is active globally, or has customers who are, this will ultimately affect your business. Be aware, be ready.”

UConn economist and business professor Fred Carstensen said that “The UK — if it survives — is in a weak position to negotiate access to the EU market. At best, it will end up agreeing to conformity to EU regulations — but with no vote. At worst, it will rely on World Trade Organization rules — which provide little help for the UK's most important sector: financial services.”

Carstensen said major banks are already planning to move thousands of employees from London to Dublin, Paris and Frankfurt. And virtually every major manufacturer has put a hold on new investments. And because the exit process will take years, in many cases the outcome won't matter: firms will not wait to decide; they will relocate, he said.

“And once business is relocated in part or in whole, the trajectory will be set,” Carstensen said. “This vote may be the most self-destructive in modern history. Sadly, while the damage will likely be concentrated in the UK, it is nearly inevitable that for many years into the future we will all be poorer, more isolated and less open to global engagement than we would have been. It is a deeply troubling prospect.”

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