Brexit Will Cost U.S. Companies Millions

April 11, 2019
523 Views

It has been almost three years since the people of the United Kingdom voted to withdraw from the European Union. As politicians in London now struggle to negotiate an exit deal with the EU, American investors are left wondering just how Brexit might impact them.

For stock market investors, Brexit could have a significant impact, depending on how it’s managed. Here are three ways that Brexit could affect American companies in the coming months.

U.S. Banks Could Face Operational Difficulties

Banks like Goldman Sachs (NYSE: GS) and J.P. Morgan Chase (NYSE: JPM) have offices in London, from where they are free to conduct business throughout the EU. Employees approved to work in London can also work legally anywhere else in the union.

After Brexit, this will no longer be the case. U.S. banks based in London may need to go through additional approvals, visas, and other logistical hurdles to do business throughout the rest of Europe. This could force banks to relocate their European offices at great expense.

Drug Manufactures Will Pay More for Approval

Medication in the EU is approved by the European Medicines Evaluation Agency. The Agency is based in London but will move to Amsterdam by the time the UK fully withdraws from the EU.

U.S. drug manufacturers have based themselves in the UK, due to close business ties and a shared culture/language. EU rules state that new drugs must be tested within a member state. This means that manufacturers who are currently in London will need to relocate. Pfizer (NYSE: PFE), one of the largest drug manufacturers in the world, has estimated that Brexit will cost the company up to $100 million.

Car Manufacturing Could Become More Expensive

The UK is a major car manufacturing nation, and several American companies have local investments that would be harmed by Brexit. Ford (NYSE: F), which has around 13,000 staff in Britain, has announced that it will consider relocating its engine plants, depending on what kind of deal the UK can get when it leaves the European Union.

A “no-deal” Brexit would leave the UK politically isolated from Europe, which could introduce tariffs and other difficulties for automakers.

Ford has said publicly that it has spent tens of millions preparing for Brexit, and that it could lose up to $1 billion in the worst-case scenario.

A British-Made Problem That Affects the United States

Investors who believe that they will be shielded from Brexit may have to reconsider their stance. While the main impact of the withdrawal will be felt in the UK, some U.S. companies operating in the region will be directly affected.

The UK currently has until October 31 to sign a long-term trade deal with the EU.

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