What will happen to UK imports and exports after Brexit?

What does a weak pound mean for SMES?

As negotiations on Britain’s future relationship with the EU continue, small and medium-sized businesses have said they expect trade to be reduced as a result of Brexit. Nevertheless, the effects are not straightforward. One of the most noticeable and immediate effects of the referendum result was the weakening of the pound, resulting from the consensus among economists that Brexit will lead to slower economic growth. For businesses that rely on imported goods and raw materials from outside the UK, this translates into an increase in the cost of doing business. Conversely, businesses that earn revenue in the UK but face competition from overseas could find themselves enjoying a competitive boost, as customers in the UK will have to choose between expensive imports and potentially cheaper domestically-produced goods. Small businesses based in the UK could also take advantage of the weaker pound by doing more business with the EU and further afield.

What about the customs union?

While it is a member of the EU, Britain is part of what is called the customs union – which simplifies the transit of goods across national borders. If the UK leaves the customs union – an outcome looking more likely as the idea of a ‘hard’ Brexit takes hold – then importing and exporting goods will instantly become much more difficult. This will be a particularly nasty outcome for SMES with complex supply chains, for whom business could become almost impossible. Some businesses have mooted the idea of leaving the UK if this happens. Rewriting the existing trade agreements after Brexit could prove a herculean task: the Financial Times reports that the UK could have to re-work more than 750 individual deals across the world.

What could potential tariffs or barriers mean to companies?

While owners of small businesses may cling to hopes of a Brexit business boom resulting from more competitive export prices, the reality is that in order to make the most of the weaker pound companies will have to be able to do international business with a minimum of meddling. As the law stands, people and goods can travel through the EU with impunity, but unless the UK remains in the single market, or can quickly work out a trade deal once it leaves, small businesses could see any potential international advantage eaten up by a tangle of red tape. Extra tariffs imposed by the EU on imports from the UK could push up the sale price of those goods, devouring any competitive advantage: the average external tariff imposed by the EU is between two and four per cent. And if the UK imposes tariffs of its own on imported goods, SMES (and their customers) will have to pay the inflated prices.

What will happen to European staff?

About 20% of SMES say they employ staff from the EU. Even if there is no immediate legal change in their status, European citizens may feel their jobs are no longer as safer as they were before the Brexit vote, increasing the incentive to move somewhere where they feel their employment prospects are more secure. This could result in SMES facing increased difficulty finding the staff they need. Because SMES tend to pay lower wages than their larger cousins, they might find themselves having to up their staffing costs in order to keep recruiting the employees they need. Some researchers have claimed it could be harder to attract unskilled labour for jobs which have recently been occupied by workers from the EU. This is work that generally doesn’t attract school leavers in the UK - for example in the food processing or care home industries.

What about other markets?

There are, of course, big markets beyond the EU, including the USA, China and India, and many small and medium-sized businesses hope Brexit – and the competitive advantage afforded by the weak pound – will lead to opportunities for more lucrative trade deals with these players. However, it should be noted that profitable trade depends in large part on geographical proximity, and no amount of negotiation can bring two markets closer together. Not only that, but with US President Donald Trump taking a more insular approach to trade than his predecessors, small businesses could face some additional headwinds abroad.