While challenges may linger for the next several years, post-Brexit opportunities are emerging for motivated manufacturers. UK manufacturers are still feeling the pinch from increasing costs, regulatory red tape and non-tariff barriers such as border controls, customs checks and import duties they now face post-Brexit with the EU bloc. This is forcing them to rethink sourcing, logistics and international partnerships and investment to offset lost import, export and investment volume between the UK and EU.
In general, it is an ideal time for UK manufacturers to know that the US is open for business. This is especially true for companies looking to expand or diversify their international footprint through Foreign Direct Investment.
Foreign Direct Investment (FDI) Advantages
To set context, the industry clearinghouse ResearchFDI says, “FDIs are made in open economies that have a skilled workforce and the potential for growth. Foreign direct investment takes place when an investor establishes foreign business operations or acquires foreign assets including initiating ownership or controlling interest in a foreign company.”
FDI can be accomplished in many ways including establishing a wholly owned subsidiary, acquiring an existing domestic company or leveraging relationships for a joint venture across borders.
Some of the dynamics that have historically made FDI plays work well in other markets may benefit UK manufacturers who are experiencing a post-Brexit decline. This might include opportunities to replace EU innovation funding that UK manufacturers have relied on for development. Other advantages include access to a larger population of a skilled workforce and the ability to trade in a larger market while minimizing or eliminating import tax. However, tax incentives tied to innovation can be the most compelling reason driving FDI.
US Tax Incentive Opportunities
The Inflation Reduction Act of 2022 (IRA) is the third US piece of legislation to encourage domestic manufacturing, innovation and domestic or free-trade sourcing of critical supplies. The IRA together with the Bipartisan Infrastructure Law and the CHIPS & Science Act introduce $2 trillion in new federal spending over the next ten years.
The IRA provides tax credits and incentives to encourage private investment in domestic clean energy production and manufacturing. Corporations can benefit from an approximate $216 billion in tax credits.
The IRA incentives and subsidies for manufacturers provide an opportunity for UK and EU manufacturers still struggling post-Brexit. In addition to direct access to the large US market, foreign direct investment into the US provides non-US companies the opportunity to align with the priorities of IRA and benefit from tax incentives and credits while growing their global operations and market share.
Establishing a footprint in the US provides opportunities to meet the IRA’s local content and domestic sourcing requirements and sell products to the US market without the cost and regulation of exporting to a country without a free trade agreement.
The combined influences of lingering Covid-19 fallout and post-Brexit financial pressures on UK manufacturers have created an opportunity for them to launch or expand innovative investments into the US market. This is particularly beneficial when aligning their business plan with the priorities of the US tax incentives aimed at supporting growth and innovation for clean energy and manufacturers.
Continue the Conversation
There are many more implications for UK manufacturing companies to consider when it comes to post-Brexit business opportunities in the US. Clayton & McKervey’s international and manufacturing & distribution experts routinely advise global business leaders on FDI opportunities, partnership strategies and growth planning. If you would like to learn more about the Brexit impact for UK manufacturers, please reach out.
