How a hard Brexit will affect Welsh businesses

Like every other part of the UK, Wales is bracing itself for the impact of Britain’s exit from the EU and is eagerly waiting to find out what kind of deal, if any, the government in Whitehall will negotiate with the EU.

Recently, the Welsh Government made its position on the matter clear, but the plan that they published put it in clear opposition to the stated intentions of UK Prime Minister Theresa May. First Minister Carwyn Jones insisted that Wales should remain within the EU customs union with full access to the European Single Market. This, however, crosses one of the UK Government’s stated “red lines” in that it would prevent the UK from having an independent trade policy.

Devastating effect

The position of the Welsh Government is based on a report from the Cardiff Business School, which suggests that a hard Brexit – currently the UK Government’s preferred option – would have a devastating effect on Welsh businesses. It predicted that if Britain left the EU without a trade deal and reverted to trading on World Trade Organisation (WTO) terms, then the Welsh economy would shrink by 8-10% – the equivalent of losing £1,500-£2,000 per person across the country.

61% of Welsh export trade is currently with the EU, with just under half of its imports coming from the union. Export trade is worth £14.6bn per year, with 500 million customers for Welsh products within the EU.

Free trade agreements

Welsh farmers are particularly concerned about Brexit. 90% of Welsh lamb and shellfish is exported to the EU, and a hard Brexit would likely mean the imposition of tariffs, and certainly the loss of preferential access to the single market. The result is predicted to be a steep loss of both trade and investment, leading to extensive job losses. Welsh lamb would be further hit if the UK proceeded with an independent free trade agreement with New Zealand.

While the finance sector is not a major employer in the country, all businesses will be concerned about the movement of money in and out of the country post-Brexit. There will still be affordable options to transfer money from UAE to the UK and from other destinations, but the impact on the pound will likely be felt across the whole of the British Isles.

Earlier this year, Jones suggested that the Welsh steel industry could be wiped out by a hard Brexit. This alarming statement was based not just on the loss of preferential trade with Europe but also on the free trade deal that Britain is currently pursuing with China, which would allow the untaxed import of cheap Chinese steel into the UK. The automotive and aerospace sectors are also likely to be hit hard by export tariffs and other trade barriers, with a resulting knock-on effect to the regional economy.

Disproportionate impact

With Wales likely to be hit disproportionately hard by a “no deal” Brexit, few firms found anything positive to say about this outcome. It seems that the best hope for Wales is if a compromise solution is found before March 2019. If Whitehall refuses to accept the Welsh Government’s proposals, then Wales will be hoping that some other arrangement is made to prevent a hard Brexit from coming to pass.