Brexit financial uncertainty touches San Diego economy
The United Kingdom's decision to leave the European Union threw global exporters into turmoil. London's famous Underground subway system's ticket payment is run by San Diego-based Cubic Corp. Nick Webb, Flickr

Brexit financial uncertainty touches San Diego economy

When the United Kingdom’s voters narrowly decided to leave the European Union, they sent shockwaves throughout the global economy.

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But what did the June 23 vote mean for businesses here in San Diego? So far, the keyword for Brexit fallout is uncertainty.

The economies of the United Kingdom and San Diego touch in two primary ways: We sell them stuff we make through exports, and they hire people here through direct investment.

By Friday, the British pound had fallen about 10 percent — its value going from almost $1.50 to about $1.33.

That matters because a more expensive dollar means British money doesn’t go as far.

That’s the risk for local exporters: Their products got more expensive overnight. And deeper problems could await the British economy.

“There’s a real risk of recession in the U.K. economy,” said Allan Timmermann, a UC San Diego professor who got his doctorate at the University of Cambridge and his master’s at the London School of Economics.

How big is San Diego’s trade with the United Kingdom? Depends whom you ask.

“The number of companies that are trading with San Diego and the U.K. is really small compared to the overall number of companies that are trading with Mexico and Canada and China,” said Victor Castillo, director of the Center for International Trade Development at Southwestern College. The center provides small businesses with training and technical assistance in international trade.

The center analyzed roughly 1,300 companies in San Diego engaged in international trade. Of those, about 130 companies traded with the European Union and only 16 specifically with the United Kingdom.

One of the biggest is Cubic Corp., which provides technology for everything from payment systems for transportation to combat training. They are one of the largest San Diego exporters to the U.K. and employ 1,500 to 2,000 people locally.

Jay Thomas, executive vice president and chief financial officer of Cubic, said the company is not too worried because it mostly exports services rather than goods.

“We run the subway, the fare collection part, and we train their army,” Thomas  said. “Last I checked, they won’t stop running the subway.”

Cubic does about 20 percent of its business in the U.K. and employs 1,000 people, he said.

A 2015 joint report from the research group Brookings Institute and JPMorgan Chase actually suggested the U.K. was a key market for local service exports. The report also placed the U.K. as the sixth largest export market for San Diego.

Another way to measure trade is the value of goods that left San Diego’s ports — ocean and air — to other countries. Last year, $22.7 billion worth of stuff headed out from here to places all over the world. Only $82.3 million of that went to the U.K., based on data from the U.S. Census Bureau.

Castillo said the impact on trade to San Diego businesses might be limited to a few industries, such as biotech and maritime technology. That trade is important, he said, but that’s not his biggest concern.

“I’ll be more worried about the decrease in foreign direct investment (from) the U.K. into San Diego,” he said.

British bosses

Foreign direct investment is when a company or investors in a different country start or buy a business here in San Diego.

A June report from the Los Angeles World Trade Center found almost 55,000 jobs in San Diego County are in foreign-owned businesses. Those jobs result in $3.4 billion in wages.

Here, the U.K. stands out in the local economy. The biggest share of those jobs, one out of five, is in a business owned by a U.K. company or investor.

Timmermann, at UCSD, isn’t sure how the Brexit fallout might affect  U.K. business ownership locally.

“We just don’t know how different the new world will look compared to the old world,” he said. It’s unlikely, however, that the relationship between them and the U.S. will change much.

Expect recession sooner

How exposed San Diego is to the U.K. economy won’t matter if the whole U.S. economy goes belly up. Intensity Corp. is a San Diego-based company that uses big data to predict, among other things, changes in the overall U.S. economy.

Intensity CEO Ryan Sullivan said Brexit is having a profound effect.

“The Brexit vote caused us to accelerate our expected start of the recession here in the United States by four months, from January 2018 to September 2017,” he said. The odds of a recession in the next 12 months also increased to 43 percent from 27 percent, according to the company’s forecast.

“This ranks up there with being among the most dramatic effects that we have seen,” Sullivan said.

One positive for San Diegans in the Brexit chaos: Aside from cheaper tourism in the U.K. itself, imports from Britain to the San Diego cost, at least for now, about 10 percent less.

shadow-ornament

We'll let you know when big things happen.

About Leonardo Castañeda:

Leonardo Castañeda
Leonardo Castañeda is a reporter and economic analyst for inewsource. To contact him with tips, suggestions or corrections, please email leocastaneda [at] inewsource [dot] org.