Economy and Trade

Brexit and Welsh firms

A great deal of air time has been given to the Brexit process and what the ‘final’ outcome might mean for consumers, industries and the environment in Wales.

Welsh Government recently released a report, ‘Trade Policy: The Issues for Wales’, to look at this issue. Cardiff Business School helped shape some of the report’s conclusions by examining how the process and practicalities associated with leaving the EU might impact Wales’ larger firms.

The scope of our work

Primarily, our research tried to better frame current and future risks that could affect Welsh firms. We examined the risks of firm exposure to import and export tariffs, as well as to different types of non-tariff barriers, to loss of research and networking opportunities, and to risks potentially associated with reduced access to labour from different parts of the EU.

We also explored the vulnerability of regional firm activity to displacement to other locations in the EU and further afield, and how changes in the scale of this activity could affect other parts of the regional economy through supply chain effects.

Multinational subsidiaries most vulnerable

The larger firm activity shown to be most vulnerable to a ‘hard’ Brexit are typically multinational firm subsidiaries, with production options elsewhere in Europe or further afield. In these cases, intra-firm investment is typically subject to rounds of internal competition.

We identified some sectors of the Welsh economy facing particularly high risks, including aerospace, advanced manufacturing, automotive and electronic engineering; these sectors embrace some of Wales’ largest and most productive private sector employers.

A further issue was that different firms, even within the same industry, perceived different risks according to their positions in global supply chains, the precise structure of their import and export trade, and the different nature of non-tariff barriers such as product standards or rules and regulations. This complex picture means generalising on the impacts of the Brexit process is difficult, as will be developing appropriate policy responses and interventions to assist them.

Data and uncertainty

Also clear from the research was that very few Welsh industries were fully immune from uncertainty around the changes brought on by Brexit, even those that were more dependent on domestic, as opposed to overseas, demands for their goods and services.

In some cases, uncertainty was already being factored into capital investment decisions, particularly in firms whose products were coming to the end of their lifecycles or where parent companies were considering locations for new products and services.

Inevitably, the work identified some important knowledge gaps relating to Welsh firm activity. For example, while we have some useful statistics on overseas exports from Welsh firms, much less is known about the scale and scope of Welsh trade with firms in the rest of the UK, who then subsequently trade with overseas markets. There is also very limited information available on how Welsh firms use imports from different geographical sources.

Developing detailed datasets on trade flows within the UK economy is a resource-intensive exercise, but is crucial for understanding how economic shocks affect our economy.

It remains extremely difficult to forecast exactly how the Welsh economy will be impacted by the process of Brexit. Indeed, this very uncertainty was a chief concern of many of the firms consulted during the work. However, developing a framework for understanding the risks facing our larger regional firms is critical for forming an appropriate policy response and for the Welsh Government in its representations to UK Government.

Professor Max Munday is Director of the Welsh Economy Research Unit of Cardiff Business School. He has research interests in Welsh economy, regional economic analysis and regional policy.

This post represents the views of the author and neither those of the Welsh Brexit blog nor Cardiff University.

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