Lately there has been a lot of controversy and debate regarding the historical Brexit or British Exit, which is the exit of the United Kingdom from the European Union. And not long ago we were watching how it was causing a lot of problems in the United Kingdom, starting from the drop of the Pound and the growing tension between the countries that make part of it. We have already seen that the economic impact of the decision was really big, especially for the United Kingdom that has already suffered a lot, starting in its stock and its currency, like mentioned before, though it is expected that other aspects of the economy will be affected. Today we will be analyzing and checking how logistics, and more specifically, supply chains will be affected by it, as supply chains are one of the most important parts of logistics.
What would be the most likely to modify and affect supply chains are tariff and trade restrictions, though it is expected that both the United Kingdom and the European Union will avoid raising the tariffs and trade restrictions as it would have a negative impact in the economic growth of both and this would likely affect politics indirectly. We should also take into account this is not the first time a country is outside of the European Union and still makes part of the European market. For example, Norway is not part of the European Union but is part of European Economic Area, this gives them some of the advantages of being part of the single market but by doing so they have to also contribute to the budget of the European Union and respect some regulations like allowing people from the European Union to have access to Norway and the possibility of living in it. Another model is the one applied by Switzerland, which does not have full access to the single market but they still have some agreements that make trading between Switzerland and the European Union a lot easier.
And though Brexit doesn’t seem to affect supply chains that much there are two things that may affect it directly, and Brexit could have a serious impact depending on how these two situations develop. The first one is the increased effort of the European Union of eliminating tax havens, as they are trying to force low tax countries like Switzerland or Ireland to increase them. This will affect countries that have subsidiaries on these countries with the purpose of having reduced taxes, an example being Apple and their Irish subsidiaries. This is forcing most companies to avoid this low tax countries due to the efforts of the European Union making it a lot harder to make business in them, this has led to most companies looking for a more logistically strategic place instead of places with tax benefits. The other is the US presidential elections, this one being the one that will probably affect supply chains the most, while Bernie Sander supports the Trans-Pacific Trade Deal, which would reduce a lot of duties for products and services between Asian countries and the United States and would have augmented the trade between both sides of the deal, Donald Trump and Hillary Clinton do not support the deal.
Another thing that might affect supply chains if Donald Trump wins is that he plans to increase trade restrictions and barriers between the United States and countries like China or Mexico. Both of these countries are important when it comes to manufacturing, as they are some of the most significant places of manufacturing outside the country, as their manufacturing and production costs are much lower and these products would later flow to either the United States or to Europe.
So, to summarize, we expect Brexit to affect supply chains a lot on its own, but mixed with other circumstances and events it may change its impact drastically. On the other hand these other situations will greatly impact supply chains, Europe with its attack on tax haven will cause many multinationals to move their warehouses, plants, subsidiaries and control towers to other countries. And the US presidential elections will affect us depending on who wins, if Trump wins a lot of manufacturing options will get narrowed and become more expensive due to his intentions of reducing commerce with China, Mexico, Japan and South Korea.
Remember to follow our blog and check more articles by David Kiger in it, we personally recommend this article about Third Party Logistics and how it helps supply management evolve and develop. So if you are interested in the world of logistics, manufacturing and supply chains you should make sure to check more of our content as we offer different analysis and tips that you might find useful for both you and your company.