By Chris Mitchell, vice president, global government relations 

Key Summary

• Brexit delays created prolonged uncertainty, with political gridlock pushing decisions past original deadlines
• A no-deal Brexit remained a significant risk, threatening tariffs, border disruptions, and severe economic impacts
• UK political instability — including potential leadership change and early elections — added to business uncertainty
• Manufacturers began stockpiling inventory and rerouting supply chains to mitigate Brexit-related risk
• The electronics industry faced disproportionate disruption due to its globalized supply chain and UK’s sizable workforce
• Economic indicators already showed Brexit-related harm, including reduced GDP growth and weakened investor confidence

The United Kingdom’s effort to leave the European Union, known by the nickname “Brexit,” is bogged down in political uncertainty, which in turn is creating disruptions in the global economy. With a “no-deal” Brexit possible within two weeks, here’s a recap of recent developments and the possible impacts on the electronics industry. (And let us know what you think about Brexit.) 

First, a Quick Recap 

Following a 2016 referendum in which the “leave” side won narrowly, the British government invoked Article 50 of the Treaty of European Union, which lays out a two-year process for member countries to withdraw from the EU’s political and economic structures. That process was set to conclude by last Friday, March 29. British Prime Minister Theresa May finalized a Withdrawal Agreement with the EU in November 2018. However, Parliament rejected the agreement on January 15, as well as two subsequent versions of it on March 12 and March 29. In a rare move, rank-and-file members of Parliament took control of the chamber twice in the last week to hold “indicative votes” on 12 Brexit alternatives, but none won a majority. Just yesterday, following a lengthy cabinet meeting, Prime Minister May signalled that she would seek a further extension from the EU until May 22 and that she would work more closely with Labour leader Jeremy Corbyn to forge a compromise. 

Top Takeaways 

1. The urgency remains even as the deadline is postponed. PM May asked for and received an EU extension of the Brexit deadline to April 12. She now has indicated she will seek an extension until May 22. But May 22 is right around the corner, and the country’s political leaders remain at loggerheads. It is not clear whether working with Corbyn can deliver a deal with majority support. 

2. A no-deal Brexit remains a real possibility and would wreak havoc. Goldman Sachs has estimated a 15 percent likelihood that the UK will exit the EU without a deal in place. Some fear the likelihood is even greater, and most agree the outcome would be dire. World Trade Organization (WTO) tariffs would go into effect, requiring goods to be re-priced accordingly. Customs officials would need to re-establish rules and procedures at the border, but it’s uncertain whether adequate infrastructure could be put in place that quickly. 

3. A new PM is likely soon. Throughout her tenure, May has come under withering criticism from both the Left and Right for trying to chart a middle course. In a last-ditch effort to win more Conservative Party votes for her Withdrawal Agreement, she pledged to step down if Parliament adopted her deal. The ploy did not work. Now the British political class is gearing up for a leadership contest on top of everything else. 

4. A general election is also possible. Britain’s next national election is not scheduled until 2022. Parliament can trigger an election sooner, but the current Conservative majority is largely opposed, having lost seats in 2017 in an election that May did not need to call. On the other hand, the current impasse, if it continues, may make general elections a necessity. The Labour Party may pick up seats in a general election, but few experts think it would be enough for a strong mandate, and any election would be at least several months away. 

5. Manufacturers must plan for various scenarios. Saddled with these uncertainties, companies with operations in the UK and EU are hedging against the various outcomes. IHS Markit’s Rob Dobson expects that “the impact of Brexit preparations, and any missed opportunities and investments during this sustained period of uncertainty, will reverberate through the manufacturing sector for some time to come.” In the near term, the uncertainty has led to advance purchasing and stockpiling of inventory, leading to surges in manufacturing production. But many companies are shifting their supply chains away from the UK, sourcing goods and materials from other EU countries or from outside the region altogether. Airbus, Nissan, Ford, Siemens and Sony are just a few of the companies that are considering or actively shifting operations out of the UK as a response to Brexit. 

6. The electronics industry may be disproportionately impacted. According to an Oxford Economics study commissioned by IPC, the EU28 electronics industry employs more than 2.4 million workers, with about 8 percent or 196,000 of them in the UK. Without an orderly Brexit, the UK could slide into recession in 2019, and the country’s share of the EU’s electronics workforce could drop even further. It’s impossible to predict with precision, but the electronics industry has a highly globalized and complex supply chain. New trade barriers and uncertainties will constrain the ability of British electronics companies to leverage the European electronics marketplace and labour force. 

7. Brexit has already harmed economic growth in the UK. A column in the Financial Times says the UK economy has already shrunk by 1.5 percent since the Bank of England’s 2016 forecast, even as the world economy has grown. Goldman Sachs predicts that a no-deal Brexit could whack UK GDP by another 5.5% and depreciate the pound sterling by 17 percent. The New York Times reports the UK has forfeited its role as an economically and politically stable country from which companies can base their European operations. 

With so much at stake for the electronics industry, IPC will continue to stay abreast of developments and keep you informed. Let us know what you think by taking our survey or dropping me a line at ChrisMitchell@ipc.org.  

by Chris Mitchell, vice president, IPC global government relations

Key Summary

• IPC and 200 organizations launched a coalition to push congressional approval of the USMCA trade agreement.
• USMCA faces procedural delays including a postponed USITC economic impact report after the government shutdown.
• Congressional review awaits draft implementing legislation and hearings before floor votes can occur.
• House Democrats seek stronger labor, environmental, and prescription drug provisions in the USMCA text.
• Delays risk pushing the vote into election season, complicating bipartisan support for USMCA passage.

 Last week, IPC and more than 200 companies and industry associations announced the launch of a new coalition to make the case for congressional adoption of the U.S.-Mexico-Canada (USMCA) Free Trade Agreement. The coalition has a series of daunting and time-pressing tasks ahead of it. The USMCA needs to surmount procedural and political hurdles and be passed this year if we are to avoid the pitfalls of election year politics in the United States. When the leaders of the United States, Canada and Mexico signed the agreement last November, President Trump expressed his desire to see the trade bill move through Congress by early spring, if not sooner. However, several factors have pushed the timeline into at least the summer. The U.S. International Trade Commission (USITC), which is responsible for producing a report on the economic impacts of the trade legislation, fell victim to the government shutdown. Their report, which was originally due March 15, may now be pushed back as late as May 5. 

Although Congress is not required to wait on this report, it is unlikely that either chamber would approve the pact without an official statement on the impacts. Congress is also waiting on the draft implementing legislation that the US Trade Representative is required to submit to Congress at least 30 days prior to introduction of the bill. Given the need to conduct congressional hearings and floor debates before final votes, and given the pressing nature of other congressional business, Congress may not get around to voting on USMCA until July or September. Any additional hurdles in the process would push the bill further into the bright lights of election-year politics. The agreement has also hit a speed bump in the Democratically controlled House of Representatives. Historically, securing Democratic votes for a trade agreement has proven more challenging than securing Republican votes. For the last 30 years, in fact, trade agreements have been passed with the support of the Republican conference and a small but committed group of pro-trade Democrats. This time, two or three dozen Democrats are likely to cross the aisle and vote with Republicans to pass USMCA, but much remains unclear. President Trump and a changing U.S. economy have scrambled the politics of trade in ways that would have been hard to imagine even 10 years ago. For their part, House Democratic leaders remain focused on securing changes to the agreement. Specifically, they would like to see more ambitious labor and environmental chapters to include stronger enforcement provisions. 

Additionally, some Democrats want to reopen negotiations related to prescription drugs. These concerns are layered on top of other bipartisan concerns, including changes to the de minimis threshold, which determines which low-value parcels can be shipped across borders tax-free, tariff-free, and with simple customs forms. The Trump administration and the business interests that support the pact continue to emphasize the importance of passing it as early in the year as possible. USTR Robert Lighthizer, during his appearance before the House Ways and Means Committee last week, said that the agreement was “clearly” better than NAFTA and that failure to pass it would cause a loss of credibility on trade with China and other trading partners. The coming months are thus crucial to ensuring the growth and integration of the North American economies through the USMCA. Rest assured, IPC will be in the thick of the debate, urging Congress to pass this bill and bolster the North American electronics supply chain.