How the Brexit could affect U.S. businesses and consumers
As United Kingdom voters Thursday choose if their country stays or leaves the European Union, their decision will be felt across the ocean by businesses and consumers in the United States, according to news reports analyzing the issue.
According to Quartz, economists and analysts at the U.K. Treasury, the IMF, the Organization for Economic Cooperation and Development, the Institute for Fiscal Studies and other institutions agree that approving Brexit would damage the British economy, since the U.K. exports more to the EU than the other way around and leaving the union could restrict trade of British goods and services in Europe.
And that would impact U.S. businesses, which employ more than 1 million people in Britain, and use Britain as the portal for free trade with the EU’s 28 other nations, according to the Washington Post.
The U.S. is in the process of negotiating a trade deal with all of Europe known as the Transatlantic Trade and Investment Partnership, and approval of so-called Brexit would require a separate treaty between the U.K. and America, with trade between the two upset in the interim, according to U.S. News and World Report.
How much do Britain and America trade between each other? According to the United States Census Bureau website, Britain is America’s seventh top trading partner in the year to date, making up 3.1 percent of total trade.
The International Money Fund predicted Friday that, worst case, the Brexit may reduce economic growth by up to 5.6 percent in the next three years, according to the Washington Post. This doomsday scenario is fueled not just by anticipated trade disruptions but a predicted steep decline in the value of the British pound.
An upside to the predicted economic turmoil from Britain leaving the EU is tourist travel to Britain would be a bargain as the pound plunges in value by as much as 15 percent or more as economists predict, according to U.S. News.
However, London-based economist Peter Dixon told Bloomberg he wouldn’t expect a devaluation of the pound to last, and that it would recover within three months.
According to Business Insider, the simplest and most important thing to do is to watch the dollar.
“The direction of the currency and the rationale for the currency” are extremely important, Andrew Milligan, head of global strategy at U.K.-based Standard Life Investments, told Business Insider
Theoretically, a “stronger dollar” could mean higher prices on U.S. exports, but imports would come more cheaply to U.S. consumers, according to Business Insider.
And that could influence how the Federal Reserve moves on interest rates.
“Do we see the Federal Reserve saying yet again ‘We don’t need to move on interest rates because monetary conditions in the United States have already been tightened and they’re being tightened by the move in the dollar’?” Milligan said.
But Angel Gurría, secretary general of the OECD, said in an interview with the Washington Post that the uncertainty surrounding Brexit “would be bad for the world, including the United States.”
“You already have enough uncertainty in the world today. We don’t need more,” Gurría said.