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Poole College of Management 
Supply Chain Resource Cooperative

Considering the Impact of Brexit on Global Supply Chains

July 2, 2016

The vote by the British population to leave the European Union (“Brexit”) was greeted with massive volatility by financial markets worldwide. It also raised a number of concerns regarding the stability of the overall disposition of populations to the growth of globalization and linked economics between countries all over the world. According to a USA TODAY poll (July 1, 2016), Americans agree that the United Kingdom’s vote to leave the European Union was a sign of anger and dissatisfaction that can be seen in other countries, including the USA. Many also believe that it is an indication of a broader feeling among people around the world, as the polls suggest that many of the “Leave” voter population were from rural areas, lower education, and elderly, while many in the “Remain” voter population were from the financial community, larger cities and young people.

Regardless of the reasons, the Brexit vote will have lasting repercussions, and may threaten the stability that has existed in global markets for some time. While the majority of leaders (Obama, Cameron, and others) have pushed for greater free trade, the fear of open borders and increased immigration, particularly from those regions such as the Middle East, is pushing voters towards fear of open borders and more towards closed markets.

In the financial markets, equities dropped precipitously the day after the vote, but have returned to their normal levels. Yields on the benchmark 10 year and 30 years Treasury notes in the US and the UK fell to their lowest levels ever. This indicates a flight to safety, as equities are viewed as much more volatile.

In the short term, it seems that there is no major impact on stability of operating conditions in the supply chain. In a recent ISM press release, a “quick poll” of purchasing executives suggests that they were most concerned about financial market uncertainty and currency movements. Secondly they were concerned about global growth overall. Supply chain executives were least concerned about their firm’s trade links with the UK and the EU.

In the longer term, the Brexit vote could have political and economic repercussions that are much more serious however.  Some of the issues that executives should consider as they enter into strategic planning meetings are the following:

  • What is the likely future for the UK and the EU economic scenario given Brexit?
  • What is the impact on financial markets?
  • What is the impact on US elections and government trade talks?
  • What is the impact on the Trans Pacific Partnership Talks?
  • What areas of the supply chain will be impacted by these changes?
  • What areas of global supply and demand will be impacted?
  • Will this lead to the eventual fragmentation of the EU as other countries such as Spain, France, Portugal, the Netherlands, and others begin to debate whether they should remain?

These and other questions are important parameters for supply chain executives to consider.  I will continue to update this blog as new information comes to my attention!