MR. BREXIT, and Making Political Sense of the Implications of Brexit for Canadian Businesses.

August 22, 2016

Links from this article:mystified the internetonly 2.5% of its trade tied up in the country

Donald Trump posted this tweet at 5:11 A.M. and mystified the internet. In flowed the jokes and memes, but the underlying political commentary is perhaps the best of all. If you think about it, Brexit is a lot like Donald Trump—loud, fearful, anti-immigration, and perhaps more bark than bite. That last one might be a new one to think about, at least in the case of Brexit. After all, when on the morning of June 24 it was announced that not-so-Great Britain had voted to leave the European Union, all hell broke loose. It was emotional and economic turmoil. The British pound dropped, the markets dipped hard, and financial analysts started to sound the bells of disaster and recession. But in the months since, it has become apparent that while Brexit is bad, it isn’t a destructive force. It’s more of a growth-stunting one, especially for any other country besides Britain, like Canada.

So maybe it’s a good thing Canada stepped back a bit from Mother Britain a while ago, because with only 2.5% of its trade tied up in the country, Brexit is expected to land a much softer blow than expected to our economy and business. The United States might feel good about itself for running away from home, with various Brexit projections pointing to chances for the dollar to strengthen and the economy to benefit from people fleeing risky British financial prospects for the safety and security of American ones. The worst of what Canada can expect globally from Brexit is major structural shifts to how Canadians conduct business with and export to Europe. Many Canadian businesses use Britain as an entry point into the European market, so the country’s withdrawal from the European Union will complicate market penetration. Businesses will have to overhaul their business plans and expansion methods, move, or possibly even downsize. While Brexit itself will be a long and drawn out process filled with legislative and legal drafting, Canadian businesses will face some of the same while trying to accommodate these changes. Hitting closer to home, Brexit can have troubling implications for Canadian housing markets.

The pressure of economic instability will push financial institutions to keep interest rates low not only in Britain, but also the United States and Canada. This might sound like a good thing, but considering the critically-inflated state of the Toronto and Vancouver housing markets, low interest rates might just agitate prices further and make it even harder for people to buy houses than it already is.However, beyond foreign business and housing, the consequences of Brexit are minimal at best, and even considered temporary. Canada’s GDP fell a little, as did the Canadian dollar, and Canadian economy growth projects shrank. There is worry that Brexit will make it harder for Canadians to obtain work visas and to immigrate, but when Britain is done losing workers to Brexit, candidates from other countries will grow to be increasingly attractive options. In response to concerns about losses and lower returns on investments, RBC’s chief economist, Eric Lascelles, said, “We continue to operate on the assumption that markets will first overreact, and then reclaim some of their losses.” While it is a deeply disturbing idea with troubling potential consequences, the numbers say otherwise. Maybe Brexit is something the markets have to clear their heads about and get out of their system, just like the United States has to with Donald Trump.To see standard corporate and employment agreements, visit our Small Business Law Library!

This article was co-authored by: Alina Butt

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