What's at Stake for US in Brexit Vote
Britain is set to vote on whether to stay in the EU.
— -- You’ve probably heard by now that a Brexit (Britain voting to “leave” the EU) could be very bad -- and possibly devastating to the world economy.
But what would the move mean for U.S. stocks, and our economy?
We’d be heading into uncharted territory.
The most immediate impact would likely be a selloff in stock markets worldwide, and here in the U.S. Investors hate uncertainty, and a vote by Britain to exit the EU would pose great uncertainty about the near-term future of the global economy.
Longer-term, as Fed Chair Janet Yellen said last week in her press conference, the vote “could have consequences for economic and financial conditions in global financial markets,” which could, in turn, affect U.S. markets.
It can hurt our economy, and if the fallout is substantial, it could delay a rate hike even longer.
So how significant might the fallout be?
The U.S. is the largest single investor in Britain, with $588 billion invested and $56 billion in exports to Britain last year. U.S. businesses employ more than a million people there. Most importantly, Britain is our portal to free trade with the rest of Europe.
If there’s a Brexit, those trade deals go away, and have to be renegotiated, a process that could take years and would likely stall growth in multi-national companies, like Caterpillar, the farm equipment maker based in Peoria, Illinois. While the company’s headquarters are here in the U.S., it also has 16 plants in Britain with 9,000 employees. Caterpillar executives have said that Britain staying in the EU is “fundamental” to their business, which derives about a quarter of their sales from Europe.
Slower growth in Europe, or even recession, brought on by a Brexit vote and the uncertainty would likely also have a spillover effect here, which is why it’s not surprising a number of U.S. companies with European exposure are urging British employees to vote to remain in the EU.
Ultimately, if the vote is for a Brexit, how new trade deals get settled, the time it takes to hammer them out, and whether or not they can be renegotiated, will all impact U.S. businesses, and multi-national businesses in particular. But the degree of impact will depend on how long the uncertainty lasts, and what the new deals ultimately are.
