06 Jul BREXIT: How is England’s trade future looking with China?
Who am I?
I’m a British native, Economics graduate who’s heading a sourcing company in China.
I just returned to China from England after the most momentous vote of my life; to leave or remain the EU.
Now, unless you have been on a media blackout you will undoubtedly have heard that the UK is leaving the EU. The event more commonly known as the BREXIT.
I remember waking up on Friday 24th June to the news that we had left the EU, followed promptly by the Prime Ministers resignation and a stark drop in the value of the £GBP. A hell of a way to start the day, and all before my morning coffee.
Since then, it has been a barrage of doom and gloom about the future of Britain. With fears of a UK recession looming, the potential for a Scottish independence referendum and S&P downgrading Britain’s credit rating from AAA to AA.
At this precise point in time, international trade for British companies is in a far weaker position then merely one month ago.
For the everyday man on the street that doesn’t play the stocks, the short-term effects may not be so apparent. However, UK holidaymakers will still feel the pinch, as their British pounds cannot buy so much foreign currency anymore.
Many notable entrepreneurs have seen millions fall off their share values since the Brexit. Richard Branson, founder of Virgin Group said his company lost a third of it’s share value.
Even Tim Martin, the founder of JD Wetherspoons who pumped £224,000 into the leave campaign saw his company’s share value drop by £18,000,000. (Not his best investment.)
Now these are both British business tycoons that have lost millions in shares, but still have different views of the future. Branson wants a second vote and Tim Martin is still optimistic about the Brexit.
From personal experience, my UK clients are already worrying about their next orders from China. The vote to leave the EU meant that in the space of 4 hours, the British Pound Sterling dropped from a peak £1=$1.508 to £1= $1.331 and is currently trading at £1=$1.327 (the lowest it’s been in 31 years).
This has a large effect because a $100,000 order ($USD being the international business currency) that would have cost £66,312 on the 23rd June will now cost £75,360.39 on the 3rd July.
Now that’s a hefty sum to lose in potential profits, or a stark increase in the cost whichever way you want to look at it.
All I can do is express my opinion based on the facts.
In the UK, companies exporting from the UK are likely to receive an influx in demand as buying from England has become a lot cheaper. Using £100,000 order as an example. This would have cost $150,800 on the 23rd June and $132,700 on the 4th July. Talk about a nice US Independence Day saving!
Conversely, we are likely to see that internationally bought goods will become more expensive over the course of summer. The increased costs to businesses will have to be shared with the end consumers if they are to survive this short-term price hike.
Notice I said short-term. One of the main reasons why the pound has plummeted so far so fast is that we are in unchartered territory. This has never been done before and with such high uncertainty over the future of the country it is no surprise that the markets are in turmoil. I believe that by the end of 2016, once we have a new prime minister and the world sees that England hasn’t crumbled in on itself we should see the markets settling.
Today, it is public knowledge that a bunch of the stuff said by the Leave campaigners simply misrepresented the facts and underestimated the hurdles ahead. Even though I was backing ‘Remain’, what’s done is done and I don’t believe in crying over spilt milk. I think it is highly unlikely we will have another vote to be in the EU, so these are cards we’ve been dealt and it’s time to look for the silver linings.
I too, like Tim Martin, wish to be optimistic about the future of England.
One of the truths about leaving the EU is that we WILL in fact be able to make our own trade agreements. (HOORAY!) We will no longer have to have a consensus or be dictated by the EU.
It is now that we, the British, have to have faith in our leaders and their powers of negotiation. If they are able to secure favorable trade agreements with China, for example (as it is what directly affects my company the most), then we could see a decrease in the import tariffs thus helping to reduce the cost of imported orders.
This means that even if the £GBP is trading at less than it’s pre-Brexit value, we may see a reduction in the total price in getting goods into the UK.
I work at China-Connexions Sourcing Ltd, a British owned company. We help people buy from China in a nutshell. I know I have my work cut out for me finding the best deals for my clients. As with any British business owner, I know that these are uncertain times. We just have to pick up our bootstraps and keep plodding forward.
Thanks for reading and please let me know your thoughts.