Rajeev Dhawan didn’t want to speculate on why the pollsters got it so wrong, but in conversations during a trip to London two weeks ago, he said it was easy to gauge how the United Kingdom’s referendum on EU membership was leaning.
“It was becoming clear that the ‘Leave’ vote was going to happen, because it’s about immigration, borders and people’s angst with globalization,” the director of the Economic Forecasting Center at Georgia State University’s Robinson College of Business told Global Atlanta.
Markets, meanwhile, seemed blindsided, diving in tandem with the value of the British pound on the heels of the news that voters had decided it would be better to go it alone.
But markets are prone to overreaction, Dr. Dhawan said, and the negative impacts of the so-called “Brexit,” at least in the short term, are not as dire as the hysteria might suggest.
“The market are overreacting. They are thinking as if it’s like a Lehman-type moment,” he said. “It’s nothing like that. It’s kind of like changing a title on a house. Yes, there are some issues about the house, but the house is still there. The trade is still there. There are no barriers or anything.”
It will take two years from when the U.K. declares its official intent to leave for any real change in trade or immigration policy to come into effect. And Prime Minister David Cameron, who pledged today to resign in October, has said he would leave that duty to his successor.
Because of this drawn-out timeframe, Dr. Dhawan said he’s changing nothing in his short-term U.S. outlook. Only if the U.K. enters a recession later — and drags other nations down — would that impact his long-term projections. He is watching to see how this event will affect the Federal Reserve’s willingness to raise interest rates.
But for Georgia, which has a deep, broad base of trade and investment ties with the United Kingdom, it’s hard to imagine that the news won’t have some adverse impact, even if it’s just due to an eventual slowdown in European activity.
U.K.-based companies have around 300 facilities in Georgia employing more than 20,000 people, from the JCB tractor plant in Savannah to the Triumph Motorcycles headquarters and the major Pinewood Studios facility near the Atlanta airport.
On the inbound investment front, Dr. Dhawan says, the short-term uncertainty could benefit the U.S. as investors seek relative safety in a world economy growing more uncertain by the day. Recent British investments into Atlanta include a 400-employee software headquarters by Sage and WorldPay’s 1,200-job move into Midtown.
In the opposite direction, Atlanta’s Fortune 500 giants and major corporates have key European offices in London.
United Parcel Service Inc. has a key logistics operation in the U.K., while Coca-Cola European Partners, the company’s Western European bottling group, just consolidated there. Arris Group made headlines last year with a $2.1 billion inversion merger with Pace, a U.K. telecom equipment provider, and many more have made British acquisitions in recent years.
And exporters of goods like airplane parts and vehicles could be hit should the pound’s slide prove lasting, denting the buying power of British companies.
In 2015, Georgia exports to the U.K. grew 10.2 percent to $1.8 billion as the country retained its spot as the fourth largest export market for Georgia behind Canada, Mexico and China.
One surprising increase: Exports of wood products, which nearly quadrupled to $213 million in one year. (Wood pellets are made in south Georgia for burning in European power plants.)
But any export losses could balance out at a macro level: Georgia imports $3.6 billion from the U.K., and all of those products would be cheaper with a weaker pound relative to the dollar.
Some impacts of a Brexit could be more indirect and may take longer to flesh out, like whether the many Georgia-based payments firms like First Data, Global Payments and TSYS with substantial London operations would be affected by the diminished role as a financial services capital that many analysts expect it will play if it finds itself outside the EU.
Either way, it’s a wait-and-see game, said John Watkins, a Thompson Hine LLP business attorney in Atlanta and a British-American Business Council of Georgia board member.
Mr. Watkins spent Thursday evening with other BABC members at the Ship and Anchor pub in Sandy Springs, where they watched results come in during a gathering they called “Brexit Pub Night.”
“Although we have members and friends with differing views, my strong impression is that a majority of our group—being primarily interested in trans-Atlantic trade and investment—preferred to remain. I would also venture that most of us were surprised at the outcome. However, given the tight polls leading up to the vote, this was a clear possibility,” he told Global Atlanta in an email.
Still, he expressed optimism that the U.S. and U.K. would continue their vaunted “special relationship.”
“Beyond financial turmoil and the prime minister’s resignation, it is difficult to assess short-term impact because exiting will involve a process over years,” he said. “With respect to U.S.-U.K. relations, there has been a special relationship for many years, and that should continue and perhaps become even stronger.”
Georgia’s elected officials seemed to share that view, with Republican Sen. Johnny Isakson saying he’d be “happy” to negotiate a trade deal directly with the United Kingdom, despite President Barack Obama’s assertion during a U.K. visit that the country would find itself at the “back of the queue” for such a deal should it leave the EU.
The U.S. is in the midst of negotiating the Trans-Atlantic Trade and Investment Partnership with the 28-member bloc, an effort thrown into question by the exit of the U.K., ironically one of the deal’s staunchest supporters.
“They’ve been a great trading partner to the United States for decades and decades, and I wouldn’t stop trading with them ’cause they got out of the EU,” Mr. Isakson told POLITICO. “I’d be happy to negotiate a bilateral agreement.”
Similarly, Sen. David Perdue, R-Ga., issued a statement on Twitter that seemed to balance friendliness to the U.K. with loyalty to traditional European alliances.
“The United States remains a steadfast ally of the United Kingdom. At the same time, the United States is also committed to the member nations of the European Union. I am confident that all of our nations will continue to work tougher in the face of great global insecurity and unrest. It is also key that the existing European Union members remain active partners in NATO and international trade.”
Mr. Dhawan said the trade part isn’t likely: Trade is being battered, both in the U.S. and in the EU, and the Brexit is just one more blow.
“This is not good news for all the trade agreements anywhere in the world. There’s a backlash to globalization, and that is beginning to show up in this vote politically.”
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