How hard will Brexit hit the US economy?
Though Britain's vote likely won't throw the United States into economic turmoil – in fact it may have some short-term financial benefits – the message behind it has acute implications here, some say.
The British people have voted 52 percent to 48 percent to leave the European Union after 40 years of membership in an economic and political coalition first established in the mid-20th century to encourage collaboration among European countries in a time of war. It's difficult to guess over the long-term how exactly the decision will affect the US economy. But some experts predict the implications could reach far beyond the financial realm.
Last night's controversial vote sent global stocks tumbling on Friday morning, in “one of the biggest slumps on record,” reported Reuters, as European companies lost billions of dollars in value in early trading. As economists had estimated in anticipation of a potential leave vote, last night’s outcome led to a 10 percent drop in the value of the British pound – and a decline in the value of the Euro – compared to the US dollar to its lowest level in more than three decades. As of Friday morning, £1 was worth $1.37.
Given America's deep ties with Britain, worth trillions in investments flowing both ways, the decision sent the markets into a freefall in the US too. The Dow was down nearly 400 points, or about 2.1 percent, in mid-morning trading. The S&P 500 was down around 50 points at 10:30 am ET. Despite the ominous market response, over the long term there won’t be much of a dent here, predicts at least one analyst.
“Today is just a classic market reaction,” which could last for weeks, Greg McBride, chief financial analyst at financial information repository Bankrate.com, tells The Christian Science Monitor. “This does not help Europe awaken from their economic coma, but here in the US we’ve been having to deal with a weak European economy for years.”
A stronger dollar over a declining pound and Euro (Britain never switched to the Euro), means business that export to Europe will suffer as American goods become more expensive abroad. On the other hand, says Mr. McBride, companies that import from Europe will save money, as will Americans traveling to the continent this summer.
“That trip just got a whole lot cheaper,” he predicts.
In the short term, Britain's economic slump could benefit Wall Street by giving the American financial services industry an edge over London, which is the financial capital of Europe, as Aaron Klein, a fellow, and D.J. Nordquist, chief of staff in Economic Studies at the Washington, DC-based think tank Brookings Institution, wrote in a column last week.
Additionally, only 4 percent of US exports go to the UK, so the impact of a recession from a trade standpoint would be minimal for the US.
But beyond immediate financial gains and losses, some say there are wider and more nuanced implications of the Brexit, or British exit from the European Union, vote.
“It’s hard to see that this won’t have an impact on the US economy,” David Wessel, director of Brookings Institution’s Hutchins Center on Fiscal and Monetary Policy, tells the Monitor. “But more importantly, this is a manifestation of the anger of people who have been left out of the global economy."
The message sent by disaffected British voters could be a harbinger for the US election, Wessel says, the outcome of which will ultimately shape the US economy.
“The imperative now for elites in the US – business people, politicians – is that we can no longer pay lip service to the effects on people left out of globalization,” he says.
Republican presumptive presidential nominee Donald Trump, responding from Scotland today, where nearly two-thirds of the voters wanted to stay in the union, called the British vote to leave the EU “purely historic.” He praised the British who "took their country back” in a Tweet and drew parallels with the US, where “we will take America back,” he tweeted.