McArdle: Deal or no deal, Brexit taking toll in U.K., Ireland

By Megan McArdle

The Washington Post

DUBLIN — One doesn’t necessarily expect to find an advanced manufacturing operation in the Donegal Gaeltacht, one of the last rural redoubts where the Irish language can be heard in everyday life. Yet there Irish Pressings is, producing tooling and parts for the auto industry. Since it was founded, the company has grown steadily, even during the most brutal parts of the financial crisis.

Irish Pressings planned to grow even bigger this spring, because the company expected a major contract from Honda for one of its new models. News of the contract had prompted a weekend-long celebration; followed by devastation in February when Honda announced it was shutting the factory in England where the car was to be made. Honda said the decision wasn’t Brexit-related, but in 2018 an executive had detailed the company’s concerns about problems that would be caused by Britain’s leaving the European Union.

Declan Ward, Irish Pressings’ managing director, says his firm will be fine, because its policy is not to spend money on expansion until a contract is firmly in hand. Nonetheless, losing the Honda job was a blow to an employer in an area that desperately needs this kind of economic development.

Much of the speculation about Brexit over the past few years has focused on how it would affect the British and Irish economies. Remainers have occasionally exaggerated just how bad it would be; even if Britain crashes out of the EU with no agreement to organize its trade with other countries, Britons are not going to be boiling up their shoes for dinner.

That said, a no-deal Brexit is likely to be disastrous enough. Josh Hardie, deputy director general of the Confederation of British Industry, estimates shipments through the Port of Calais, Britain’s gateway to Europe, would fall by 50 percent in the immediate aftermath. For consumers, that would mean shortages of certain goods and long queues. For businesses, it would mean a major economic shock, one that would, of course, eventually hit workers’ paychecks. And while leaving the EU might not be fatal to London’s place as a world financial center, some job losses are inevitable. Last year, Bank of America relocated to Dublin, moving about 100 jobs from London to its Irish subsidiary.

But that doesn’t mean Ireland expects to do well out of Brexit. An Irish government study released last month estimated that a disorderly, no-deal Brexit would cause job losses in the tens of thousands over the next decade, in a country with a population of less than 5 million. Ireland sends most of its agricultural exports to Britain, and much of the rest of its trade uses Britain as a land-bridge to the rest of Europe. A hard Brexit would be very hard on Ireland.

And as Irish Pressings’ experience suggests, you don’t actually have to wait for Brexit to see economic ripple effects across both sides of the Irish Sea. With Brexit, says Ward, “The damage is already done. There’s been a dramatic decline in car buying.”

The uncertainty over the shambolic Brexit political process is making matters worse. Mark Sharkey, the chief executive of the Cope, a retail cooperative near Irish Pressings, recalls starting to plan for a hard Brexit and asking his suppliers what they were doing. He says he was startled when they replied, “Very little,” but it was understandable. With everything in doubt, how can you plan?

Companies waiting to discover whether Britain is going to leave, and how, are withholding investment; or steering investments elsewhere. And as Hardie told me, “Once a hundred-million pound investment has gone somewhere else, it’s not coming back.” And of course, some of the follow-on investments that otherwise would have been made will instead flow toward the money’s new home.

But the changes taking place in the British economy aren’t necessarily visible in the headline gross domestic product figures, and that may actually be making things worse. If the uncertainty had crashed Britain into a recession, politicians might have been forced to come to some orderly, timely arrangement. But GDP grew at a rate of 1.4 percent in 2018; not stellar, but not catastrophic either.

Even more perversely, the uncertainty has spurred some of the growth: British firms are building up their inventories in case a no-deal Brexit suddenly cuts off supplies. That has given the British economy lately a healthier glow than it merits. Even in an orderly Brexit, or a canceled Brexit, the glut of goods will depress output in future quarters.

Eventually, something will have to happen with Brexit, and eventually, Irish Pressings and British industry will muddle through; the Cope will cope. But every day that politicians dither is another day of damage to businesses — and another day for firms to look beyond the British market, toward places where the path forward seems clearer.

Follow Megan McArdle on Twitter @asymmetricinfo.