Britain is expected to leave the European Union (EU) following a national referendum last Thursday, an event widely tabbed “Brexit.” The news sent global financial markets plummeting in the days that followed, though they’ve since regained footing. Meanwhile, the glass, door and window industries in the U.S. and abroad are taking a wait-and-see approach — though there are strong indications that the vote in the U.K. could help the U.S. housing market.
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Azon International is one U.S.-based industry company that does business in Europe and other regions in the world. Azon vice president of sales and marketing Jerry Schwabauer says it’s “way too soon” to see if Brexit would impact the industry in any significant way.

“Certainly, it had an immediate hit on the stock market, and I think it’s a signal to further unrest in the European Union as a whole,” he says. “But as far as whether it will have an immediate impact on our business, we’ll just have to see how the dust settles on this. It’s too soon to tell.”

Quanex Building Products briefly addressed the topic in its investor and analyst presentation on Wednesday. In giving investors the company’s financial overview, chief financial officer Brent Korb pointed out that the company’s foreign exchange (FX) exposure totals approximately 90 million pounds and 28 million euros in sales. To demonstrate the impact of Brexit on Quanex’s 2016 guidance, Monday’s FX close would represent an 8- to 10-percent reduction in sales.

Korb said he gave investors that information in case Quanex’s FX stays where it is, but “I think we all know that is going to move between now and the end of the year.” Investors didn’t seem all that concerned and hardly addressed the topic during the question-and-answer portion of the presentation.

A U.S. Housing Boost?

Britain’s exit from the EU could lift the U.S. housing market, according to National Association of Realtors chief economist Lawrence Yung, as foreign investors seek a safe haven. That could push the dollar higher and send mortgage rates even lower than they are now, he told Realtor Mag on Friday.

Other analysts agreed.

“Mortgage rates will tumble, possibly hitting new record lows,” Greg McBride, chief financial analyst at Bankrate.com, told Realtor Mag.

And those low rates might be around for a while, which could help push many younger consumers to buy a home rather than rent one.

“The Fed will very likely be on hold for some time as it observes the impact on U.S. and global financial markets and economic activity,” Fannie Mae chief economist Doug Duncan says.

American Manufacturing

Linda Dempsy, vice president of international economic affairs at the National Association of Manufacturers (NAM), says it could take years for the effects of Brexit to unravel. She writes that “given the size of the U.S. commercial relationship with Europe, the U.K. decision is expected to have wide ramifications.”

She adds, “Indeed, the U.S. commercial relationship with the United Kingdom and European Union combined is the United States’ largest in the world, representing about 40 percent of the global economy. Trade of U.S.-EU manufactured goods reached $836 billion in 2015, and cross-border investment equaled more than $5 trillion. Many U.S. companies with EU operations have headquarters in London, and about 17 percent of U.S. manufactured exports to the European Union are destined just to the United Kingdom.”

Across the Pond

According to one poll, the U.K. fenestration industry was in line with the thinking of British voters as a whole. Industry publication Window News conducted a poll in the months leading up to the vote, in which 55 percent of respondents said they believed the U.K. should leave the EU. Forty percent voted to remain, and 6 percent were undecided.

“Our industry seems to be well insulated against most economic turmoil and we have weathered many storms in the past and emerged unscathed,” the publication writes. “We believe the present situation will be no different.”

Meanwhile, the London-based Glass and Glazing Federation (GGF) released a statement on Tuesday claiming it remained “open-minded” about Brexit.

“In the short term, we must wait until the Party Conferences this autumn and see how the political parties shape their leadership, policies and direction going forward,” said GGF chief executive Nigel Rees. “There is no doubt that the implications of Brexit and the political uncertainty is already sending economic shockwaves through the construction and property sector, the scale of which may not be clear for some time and as such a tough trading climate that will impact companies both large and small is anticipated.

“In the meantime, we remain open-minded and will work in the background with our political advisers GK Strategy, our members and key influencers in the broader construction industry to plan for all scenarios. I am confident that the Federation will be in a stronger lobbying position once the dust has settled on last week’s referendum. We will of course continue to keep our members well informed as to the unfurling impact on our campaigns and our activities to ensure they are well-positioned to cope with any changes.”

A Local Take

Steve Ashton is president of U.K.-based Ashton Industrial, a distributor of machinery for the glazing industry. He says “half the U.K. population never really understood what the EU is” and that there are common misconceptions about whether it is an economic or political union. He says the “out” voters “have let emotion influence their view, and seem to have centered around the political issue of immigration at the expense of weighing up the economic pros and cons and their consequences.”

Ashton notes that EU regulations regarding the free movement of labor throughout all member countries “has a lot of people hot under the collar.”

“The old clarion calls of immigrant workers taking jobs from native workers, undercutting pay rates, overburdening social services like housing and Medicare,” he says. “As a UK employer, I can confirm just the opposite. Whenever I seek to fill a vacancy for machinists or mechanics or electricians, I find a very small proportion of applicants are actually British. I ask myself, ‘What we would do without our European cousins?’”

Trade Questions

Global specialist law firm Dechert noted in guidance it issued to clients that in terms of trade agreements, the decision to leave the EU means it is “likely that the UK would lose the benefits not only of existing agreements but also those under negotiation between the EU and others such as the U.S.”

As for imports and exports, Dechert says that currently, “the EU customs union and free movement principles ensure that most goods can be traded and moved between EU member states without tariffs, customs duties or customs declarations and largely free of process, irrespective of the origin of the goods. The potential of tariffs on imports and exports or the increased administrative costs of a customs regime with the EU will vary from business to business but are likely to impact on many to some degree.”

Ashton notes that half of Britain’s exports land in other EU countries.

“Just being out of the EU does not mean Britain can ignore EU regulations, which will still need to be adhered to—with all the associated costs,” he says. “World Trade Organization tariffs (export duty and tax) will be applied to sales to the EU, making Britain less competitive. But the same applies both ways, and so will also effect imports in to Britain. I wonder how the big glass manufacturers will handle that.”

Short term, Ashton says customers can take full advantage of the weaker pound, which would also mean a potential boost in exports. “But it is a two-way traffic—imports of component parts and materials will get more expensive as other currencies try to maintain their margins.”

Ultimately, he says, “[Brexit is] not going to kill us. The extra admin and paperwork are going to be nuisance factors. Not having to pay the annual $19 billion U.S. dollars contribution to the EU is a help, but I guess most of that will be swallowed up by increased regulation and admin costs, export tariffs and border controls. … Exports to the rest of the world should get a boost from the pound and will otherwise remain totally unaffected.”

Setting the Standard

Another question is whether the eventual split will affect codes and standards. Since its founding, the EU has sought to establish standards that would apply across all countries, industries and products—including fenestration. These standards are known as the Harmonized European Norms.

According to Geoffrey Card, who has worked for more than 50 years in both the U.K. and U.S. industries, it wasn’t easy to reach an agreement on glazing and fenestration standards.

“When I first came over here in 1988, I was invited to be a U.K. delegate for the Common Market,” he told DWM earlier this year. “We worked to harmonize all standards related to windows and glazing. It took 10-15 years to hammer it out, and it was a huge fight. The idea was to break down walls of competition. When you were in Britain prior to that, it was a hell of a job to export products to Germany or France because you had to do a ton of testing. It cost a lot of money, and it made it difficult.”

DWM editor Trey Barrineau contributed to this report.

 

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