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Reality Bites

We’re thousands of miles away, but just how immune is Canada from Brexit?

What Brexit Means For Canada

It’s actually happening — the United Kingdom’s divorce from the European Union is officially going ahead. Earlier today, the European Council President Donald Tusk triggered Article 50, which is basically a piece of legislation detailing how an E.U. member can depart from the Union. For the next two years, the U.K. and the E.U. will iron out details of the exit, to pave the way for what British Prime Minister Theresa May is calling a “smooth and orderly” break up of sorts.

We Canadians are all the way across the Atlantic, but just how immune are we from Brexit? Quite a bit, according to TD’s Senior International Economist Fotios Raptis.

Trade

“Overall, the direct impact on Canadian firms should be relatively small. Canada sends about three percent of its annual goods exports to the U.K.. The Canadian provinces that could be most affected are Newfoundland & Labrador, which ships about eight percent of annual exports to the U.K. and Ontario which ships about six percent of exports to the U.K.”

In terms of trade, Canada isn’t particularly important to the U.K. A mere 1.5 percent of their exports flow to Canada annually — that’s probably not going to change much until at least April 2019, when the U.K. officially leaves the E.U. Given Canada’s small stature as a destination for British exports, says Raptis, it is unlikely that the U.K will prioritize negotiating a new trade deal with Canada in the foreseeable future.

CETA

Worth noting however, is what could happen to the Canada-E.U. Trade Agreement, more commonly known as CETA. First, when Britain is officially no longer part of the EU, circa April 2019, CETA will no longer apply between Canada and Britain. Second, while Canada might not be important to the U.K., the U.K. is pretty important to Canada from a trade point of view.

“Britain is Canada’s biggest trading partner in Europe, and the only major European country with which Canada has a trade surplus (we export to Britain more than we import from Britain),” according to Scott Sinclair, Director of the Trade and Investment Research Project at the Canadian Centre for Policy Alternatives.

“Subtracting the British market will make Canada’s current trade deficit with the E.U. even larger and our trade relations more imbalanced,” Sinclair told VICE Money.

The British Pound

When Britons voted to leave the E.U. last last June, the British Pound plunged, as investors, unsure of the exact impact Brexit would have on British companies, started pulling out their money out from the U.K.

The triggering of Article 50 has cemented the reality of Brexit in the mind of investors — the Sterling weakened slightly today, bringing its overall value down by 17.5 percent since the Brexit vote last year. Raptis anticipates that the average Briton will finally start feeling the pinch of a weak currency in the next few months, as prices for goods start getting more expensive, and purchasing power is reduced.

That’s bad for Canadian businesses that depend primarily on the domestic U.K. market. But from a travel point of view at least, our Canadian dollar will go much further in the U.K. because of a weaker pound — rest assured that chicken tikka panini will remain at a reasonable price for the next little while.

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