How Brexit Under Boris Johnson Could Impact U.S. Businesses
MARY LOUISE KELLY, HOST:
All right. Let's talk next about the financial impact of Brexit. British business leaders and international business leaders are urging Boris Johnson to sign some sort of deal governing Britain's withdrawal from the European Union. To leave without a deal, they say, threatens both Britain's economy and global markets.
On to get a handle on the financial impact of Brexit under a new prime minister, we have reached Nicholas Bloom. He's economics professor at Stanford University.
Professor Bloom, welcome.
NICHOLAS BLOOM: Thank you.
KELLY: So to state the obvious, Brexit has not happened yet. But you have been studying this since 2016, which, of course, is when the vote to go ahead with Brexit took place. What has the financial impact been just of the specter of Brexit, the prospect of Brexit?
BLOOM: Brexit is very scary for businesses. So already, we've seen very negative effects in investment. So that's almost completely collapsed. Employment growth has slowed down. Productivity is down. You know, the best indicator is the pound has fallen. So 10 years ago...
BLOOM: It was $2 to the pound, and now it's $1.25. So, you know, the only upside is it's a very cheap time to go to England if you want to go shopping.
KELLY: A good time to be a tourist there - maybe not quite so good a moment to be a business investor. How do things change under Prime Minister Boris Johnson?
BLOOM: Boris Johnson is basically going to press the Brexit nuclear button. So for the last three years, the British have been trying to get a good deal with the Europeans under Brexit. They basically failed to do that. And Johnson has said, I'm leaving anyway. Who knows what's going to happen? I think if he leaves without a deal, the pound is going to crash further. We'll probably see a recession. You know, unemployment will shoot up. It is genuinely really scary.
KELLY: And can you put any numbers on - just in terms of - you said it's really scary, meaning what? What is the range for how tricky things could get?
BLOOM: Give you the numbers. In 2016, Britain voted for Brexit. Since then, growth has basically flatlined. We've lost three years of growth. I think if we actually leave with no deal on October 31 this year, the forecast says anything between, you know, 2- to 4% negative - so you know, a pretty bad recession, which would mean, you know, 10 years after the vote, we'll be maybe 10% poorer, which is, like, a huge amount of money. We think the average Brit is earning $40,000 a year. To lose $4,000 a year each year because of Brexit is an enormous impact.
KELLY: Although wouldn't a no-deal Brexit at least provide certainty? You may not like it, but part of what has spooked investors, my understanding is, has just been not quite knowing what's going to happen. Boris Johnson says, let me - I'm going to tell you what's going to happen, and it is happening on - by October 31.
BLOOM: I mean, yes, it's certainty. You're being told the - certainly the worst case possible. You know, you're facing a prison sentence, and you get told you're given a very worst outcome. You're more certain, but, of course, you're very depressed. And that's really what's facing British businesses.
One good example is the British car industry are mothballing and closing down plants. For example, Ford is closing a plant in Bridgend in Wales, which has 1,700 employees. And a large driver behind this is Brexit. It's going to be hard for Ford to export those cars to Europe, so they're now going to move these factories into Europe.
KELLY: And we've been talking about businesses operating in Britain. We've been talking about the impact on Britain. What about on the global system?
BLOOM: There'll be some washback. The country that's going to be damaged quite badly is actually Ireland 'cause Ireland is very connected with the U.K., and its economy is going to be hit badly. It's also quite a high chance Scotland may separate off. The U.K. going into recession won't be great for the rest of Europe. I think America is pretty insulated.
KELLY: Nicholas Bloom - he is a professor of economics at Stanford University, and he's part of the Decision Maker Panel project team, which is dedicated to tracking Brexit's impact on businesses in the U.K.
Professor Bloom, thanks for your time.
BLOOM: Thanks very much.
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