A Post-Brexit Investment Primer

CAMBRIDGE – There was a time when businesses eager to expand into Europe planted their flag first in the United Kingdom. Aside from sophisticated English accents, the UK offered a welcoming logistical and regulatory environment and automatic access to the European Union’s 500 million people. Last year, for example, Britain accounted for $600 billion of the $2.9 trillion in direct investment in the EU coming from the United States.

But now that the UK has decided to leave the EU, foreign businesses will have to plan for a new set of rules. And those rules will depend largely on what British Prime Minister Theresa May is willing to trade for the right to control immigration – a deciding factor for most “Leave” voters in June’s Brexit referendum. Rather than falling neatly into the Norway or Switzerland models for non-member engagement with the EU, whatever is negotiated will most likely be designed specifically for Britain.

The Japanese government recently released an open letter listing Brexit’s potential consequences and urging the British and EU authorities to proceed slowly and carefully, so that businesses can adjust to coming changes. In fact, while many precise details of a UK exit deal are yet to be determined, we can already discern the general contours of the post-Brexit investment environment.

For starters, manufacturers’ investment calculus probably will not change in the near term. Firms that were planning to open new plants in the UK to capitalize on its educated workforce and supply-chain infrastructure will likely move ahead with little trouble.