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Prof. Robert Grosse: Brexit May Not Be As Bad As Expected

October 2, 2018

Q&A with Prof. Robert Grosse: Thoughts about Brexit by Robert Grosse With only six months until Britain is due to leave the European Union, the country is yet to finalize a withdrawal agreement on the terms of its departure. Uncertainty over how Brexit will impact trade, tariffs, and borders has led to widespread concerns over expected economic and social disruptions. But one Thunderbird professor thinks concerns about Brexit have been overblown.

It’s less than six months until the UK is scheduled to leave the EU. 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 chaos for the UK 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. 

I expect that Brexit will have very little effect on the US or on the EU.” ~ Prof. Robert Grosse – Click to tweet

Knowledge Network asked Dr. Grosse to elaborate. Here’s the conversation: 

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

Prof. Grosse: “I expect that Brexit will have very little effect on the US or on the EU. Business will go on as usual, with probably a zero tariff agreement initially between the EU and UK 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 UK 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 UK could find some financial service activity moving to Frankfort 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.”

“The impact of Brexit will be small in Europe, other than the question of the border between the two Irelands.” ~ Prof. Robert Grosse – Click to tweet

Knowledge Network: Are you optimistic that the UK 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?

Prof. Grosse:“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 UK to remain in the EU, and even this outcome is possible under pressure at the end – but I expect that the UK will leave, just as they stayed out of the Common Market for 15 years after the main European countries started it in 1958.”

The optimal economic solution for all concerned is for the UK to remain in the EU, and even this outcome is possible under pressure at the end.” ~ Prof. Robert Grosse – Click to tweet

Knowledge Network: What do you see as the stumbling blocks to a smooth Withdrawal Agreement, if any? 

Prof. Grosse:“The UK 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.”

Knowledge Network: It seems that much of the concern 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? 

Prof. Grosse:“Yes, they certainly are overstated.”

Knowledge Network: Do you have any tips for US or European companies that do business with the UK, Scotland or Ireland as the split approaches?  

Prof. Grosse:“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.”

Knowledge Network: CEOs of several UK-based companies have announced stockpiling supplies or moving resources (including people) to Europe. Is that unnecessary?

Prof. Grosse:“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.”

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

Prof. Grosse:“Probably by default, because they won’t have taken any concrete steps to undo Brexit, at least until that time[RJP6] .” 

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, regulation, and more.

Learn More
Brexit Update: What You Need to Know 

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