North Carolina lawmakers expect the economic shock wave that struck in the aftermath of the United Kingdom’s decision to leave the European Union to have a short-term impact on the state’s financial industry and a long-term effect on companies that export goods.
The United Kingdom voted to break ties with its European partners on June 23 – a resolution that shook the world’s financial markets. The Dow Jones industrial average plunged 610 points the following day, sparking panic among stock traders and various financial institutions. A week later, the Dow made a modest recovery from the turmoil, bouncing back by 284 points.
“We’re going to hold up pretty well, albeit slower with the growth of our manufacturing sector,” Charlotte Republican Rep. Robert Pittenger said in an interview.
“My message to America is that we must not panic,” said Rep. G.K. Butterfield, a Wilson Democrat, during a news conference Tuesday with Rep. Alma Adams, a Greensboro Democrat. “Yes, I know that the markets took a pretty bad hit last week, but we’re going to rebound because we’ve done it before and we have brilliant minds to guide us through this maze.”
Pittenger is a member of the House Committee on Financial Services and has a seat on panels that oversee the country’s financial institutions and trade issues. Butterfield is a member of the House Committee on Energy and Commerce.
My message to America is that we must not panic.
Rep. G.K. Butterfield, D-N.C.
North Carolina companies that export goods supported 164,023 in-state jobs in 2014, according to a 2016 white paper compiled by United Kingdom law firm Bond Dickinson. The firm’s data also shows that the state exported $30 billion worth of chemicals, transportation equipment, machinery, electronics and textiles in 2015. Although the United Kingdom is not on North Carolina’s top five export markets short list, its departure from the European Union, known as Brexit, is still expected to have a negative impact on the state’s flourishing export industry.
"The dollar is reaching historic levels against the pound and against the euro,” said Jeffrey Hay, a managing partner of law firm Womble Carlyle in Charlotte, “which is going to make – if you look at the real impact on North Carolina companies – it’s going to make our ability to export goods to Europe really difficult."
“So the impact from the economic point of view, of Brexit, in the short term, I think, is just going to be that the dollar is going to be so strong that it’s going to hurt our export market significantly, and that’s not just U.K.-focused,” he said. “That’s going to be across the board because the dollar is such a safe currency.”
“We’ve not really had something like this happen in our lifetime,” Council on Foreign Relations Senior Fellow Robert Kahn said. The council is a foreign policy research center with headquarters in New York.
Kahn, who specializes in international economics, said the markets might have absorbed the initial shock but that didn’t mean the U.S. economy wouldn’t feel an additional impact from the “significant change in global economic relationships.” First, the financial markets will rumble with discontent, and then the exchange rate could fluctuate, he said. After that, global growth might slow down, which would have an impact on the U.S. economy.
Lawmakers are uncertain about what economic blows Brexit will rain on North Carolina’s economy, Adams said. The best way to deal with the uncertainties that surround the international divorce is to discuss them with the state’s financial institutions, she said.
Hay said his firm was already advising companies with supply contracts in the United Kingdom to identify their “risk areas” and develop contingency plans, in case the United Kingdom’s separation from the European Union caused their production costs to rise. Europe is expected to enter the negotiation phase for the U.K. to exit the EU within the next two years. Companies that manufacture goods in the United Kingdom should examine their options ahead of time, he said.
“They need to look at their supply contracts, for example, to understand what risks those contracts create for their business and what changes they need to be thinking about, you know, to deal with things,” he said. “Import tariffs might be applicable to their supply arrangements.”
Maggie Ybarra, 202-383-6048 @MolotovFlicker