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Thunderbird prof says Brexit may not be as bad as expected

It’s less than six months until the U.K. is scheduled to leave the European Union. As the March 29, 2019, deadline for Brexit approaches, there are still several key goals and parliamentary hurdles to overcome. 

Britain is facing the country’s biggest shift in foreign and trade policy in more than 40 years. Businesses, economists and government officials on both sides of the English Channel talk about uncertainty as the deadline approaches.

Prime Minister Theresa May is challenging her political opponents to back her plan for Brexit — or risk “panic” and “chaos." But not everyone believes that Brexit will cause such chaos for the U.K. and those countries that do business with it. 

One such expert is Robert Grosse, professor of business administration and director for Latin America at Thunderbird. He expects that Brexit will have little impact on either the European Union or the United States.

Whether Brexit turns out to be a Y2K moment — much ado about nothing — or total chaos, as deadlines near it is undeniably causing uncertainty around trade, migration and regulation. Read more in the Thunderbird Knowledge Network overview: Brexit update: What you need to know.

ASU Now asked Grosse to elaborate:

Question: You’ve said that Brexit will not have the impact that some people fear. Can you explain? 

Answer: I expect that Brexit will have very little effect on the U.S. or on the EU. Business will go on as usual, with probably a zero tariff agreement initially between the EU and U.K. until a few specific restrictions might be imposed. The choice to leave the EU had nothing to do with tariffs and everything to do with immigration and the EU budget. Still, trade will probably be marginally affected, because there will need to be documentation of products shipped between the U.K. and the EU. This can be done electronically, so it might not make much difference at all.

The impact will be small in Europe, other than the question of the border between the two Irelands. The U.K. could find some financial service activity moving to Frankfurt, Germany, or elsewhere as a retaliation by the EU and because the EU countries are jealous of London’s position as the world’s financial capital. I do not expect that much will actually change.

Robert Gross, Ph.D., Thunderbird Professor of International Business & Director, Latin America

Robert Grosse

Q: Are you optimistic that the U.K. and EU will come up with a solid exit agreement in time for the March 2019 deadline? Or do you think an extension will be negotiated?

A: I feel pretty sure that an exit agreement will not be reached by the deadline. Politicians prefer to reach agreements under panic situations, so they can blame the outcome on that factor, rather than taking an economic view of what arrangement would be best. Brexit is a populist political statement, not really an economic one — except for the British objecting to a too-large contribution to the EU budget. They might come to some agreement in March 2019, but I definitely doubt that they will do so until the deadline has been reached. 

The optimal economic solution for all concerned is for the U.K. to remain in the EU, and even this outcome is possible under pressure at the end — but I expect that the U.K. will leave, just as they stayed out of the Common Market for 15 years after the main European countries started it in 1958.

Q: What do you see as the stumbling blocks to a smooth withdrawal agreement, if any? 

A: The U.K. government cannot go against the majority vote that was in favor of Brexit, despite many or even most of the legislators and government leaders seeing Brexit as a bad idea. So, they won’t work toward a "smooth" agreement, since many of them don’t want to proceed anyway.

Q: It seems that much of the concerns about Brexit's impact center on timing — concerns that businesses will have to deal with significantly altered trade processes without enough time to get ready. Do you think these fears are overstated? 

A: Yes, they certainly are overstated.

Q: Do you have any tips for U.S. or European companies that do business with the U.K., Scotland or Ireland as the split approaches?  

A: Diversify your business into the EU, to avoid hassles on transportation of products and movement of your employees that may occur for months after Brexit is finalized. Don’t lose sleep over it, however, since the impacts will be quite limited.

Q: CEOs of several U.K.-based companies have announced stockpiling supplies or moving resources, including people, to Europe. Is that unnecessary?

A: It is a very valuable step to take to demonstrate to the public that the companies are taking risk seriously. I do not think it is necessary in an economic sense, but because perceptions are hugely important in business, the companies should take visible steps to protect themselves — but they should not spend too much money doing so.

Q: Do you think Britain will leave the EU by March 2019?  

A: Probably by default, because they won’t have taken any concrete steps to undo Brexit, at least until that time.