In recent weeks, I have spoken to many of HSBC’s mid-market UK clients about the upcoming EU referendum. The responses on what they and their employees are thinking have been illuminating.
First was how internationally minded even the smallest companies are today — whether in terms of its employee base, the supply chain it serves or the markets it reaches. Second was a frustration over the lack of a clearly defined alternative to Britain’s current EU membership, as well as the lack of a straightforward presentation of the facts.
There is also anger that the campaign has made significant portions of their workforces feel unwelcome in the UK, even though they are longstanding members of their communities. But by far the greatest concern was the prospect of an unknown, possibly lengthy, period of uncertainty if the UK decides to leave the EU.
I believe that uncertainty is the greatest risk to the UK economy in the event of Brexit. Investment plans would be put on hold, possibly for years. Indeed, we are seeing this happen already.
After a vote to leave, management would be distracted by the need to consider the implications for terms of trade and employment patterns. Competitors would seize the opportunity to cast doubt on the wisdom of including UK-based companies in EU-led supply chains. That would lead to the loss of both jobs and contracts.
Currency volatility would increase the costs of doing business. As an open economy, the UK would face the aftershocks of its decision to leave, which may also impact the rest of Europe and beyond.
Those who argue that these risks are surmountable, as the UK would be able to negotiate favourable trade terms and concessions, vastly underestimate the difficulty of doing so. Even discounting the likely political opposition from our former EU partners, it would be practically impossible to replace all existing agreements quickly and favourably. Experts, including the director-general of the World Trade Organisation, have been clear that any negotiation could take up to 15 years.
HSBC has built up its business over the past 150 years by following its customers as they trade and invest internationally. The nature of global trade has changed vastly in that time. Multilateral trade negotiations have broken down barriers and eliminated tariffs. The expansion of the WTO has opened new markets. Technology has helped create supply chains that span the globe, with customer lists to match. Trade is now dominated by three economic groupings: Nafta, led by the US; Asia, led by China; and the EU.
UK businesses have adapted more successfully to this world than most. Yet the referendum is forcing businesses to reflect on the economic framework in which they operate and what change might mean at a time of heightened competition from both established and emerging markets.
For 43 years, all our trade relationships have been forged within the EU. Renegotiating every one of these relationships would be a tortuous process, made harder by the fact that the UK has not employed any specialist trade negotiators since 1973.
Leaving the EU risks dismantling the very apparatus that has enabled UK firms to compete, while distracting them from the priority of growing their business and creating wealth. But more importantly it would constrain the ability of British business to participate fully in three significant areas where we have many competitive advantages: completion of the single market in services, the creation of a capital markets union and the provision and sustainable financing of infrastructure.
Given this and all the uncertainties, I will be voting for the UK to remain in the EU on June 23.
The writer is chairman of HSBC