Brexit clouded by uncertainty, says Gies professor

A Brexit solution is on hold in the UK – for now. United Kingdom Prime Minister Theresa May has canceled the House of Commons Brexit vote that was scheduled for December 11, leaving the future of the UK’s relationship with the European Union up in the air. May has been negotiating a deal with her party and with Brussels for almost two years, but it was almost a certainty that her bill would not receive enough votes to pass.

“If the deal is eventually voted down, no one knows what will happen to Theresa May’s conservative government or to negotiations between the UK and the EU,” said Candace Martinez, Clinical Assistant Professor of Business Administration at Gies College of Business. “Uncertainties are everywhere. This is uncharted waters, to be sure.”

Martinez teaches international business at the University of Illinois’ Gies College of Business. From 2014-2015, she served as a Visiting Research Fellow at IE Business School in Madrid, Spain and at Catholic University of Portugal (Porto). Her research specializes in international political stability, culture, and government regulation.

The UK is still scheduled to leave the EU on March 29, 2019 with a transition period to last until the end of 2020. Parliament needs to strike a deal before then to make their departure as smooth as possible. Much of that deal will focus on the financial and business implications of hard split, but a big stumbling block appears to be finding a solution for the border between Northern Ireland and the Republic of Ireland.

“If the UK cannot arrive at a solution to the Irish border quandary, a ‘backstop’ approach is a last resort,” said Martinez, noting that Northern Ireland voted to remain in the EU on the June 2016 referendum. “A ‘backstop’ deal would allow for Brexit to go forward without a permanent solution to the Irish border problem.”

The current arrangement in the European Union includes free movement of people and free trade within European countries. Because of that free trade, many multi-national corporations set up headquarters in London. However if the UK splits from the EU, free trade could be a thing of the past, and there is substantial uncertainty about what could mean for businesses and jobs in both the United States and the UK.

“Standard wisdom points to several thorny areas,” said Martinez. “Goods and services will not be able to cross borders freely, and new tariffs and taxes will be imposed; people will not be able to move as freely, which has visa, work permit, and hiring implications for firms. In the short term, no one knows how deep and swift the impact will be.”

Martinez adds that financial markets in the US could respond negatively in the short term before bouncing back after a reasonable amount of time. However with so many extraneous geopolitical factors – such as the trade war with China, strained relations with US allies, and the Mueller investigation – it may be difficult to parse out the causes of a post-Brexit financial market reaction.