Britain’s Departure from the European Union has Wide Implications for the U.S. Economy
On June 24, 2016, Britain voted to leave the European Union, sending shockwaves worldwide, including within the U.S. Economy. As such, although trade between the United States and Britain makes up only 0.5% of U.S. economic activity, this change could have implications beyond any direct trade between the two nations.
One of the biggest fears amongst economists is that the European Union may be on the decline as a whole. In light of this decision by Britain, other countries such as France, Italy, Greece, and the Netherlands have begun discussing holding their own referendum votes. Because the European Union is a substantial trade partner with the United States and China, many trade agreements between the two would need to be reorganized should dissolution result.
Additionally, on the day of the vote, the U.S. dollar was up 6.3% over the British pound. This was reportedly the biggest single-day gain since the 1960s. Although this is beneficial to American travelers, U.S. business sales outside of the United States have plummeted. The stronger the U.S. dollar, the more expensive products become to buyers outside of the U.S. Thus, a stronger dollar typically correlates with lower U.S. exports. However, while the U.S. dollar was soaring, Wall Street was not so fortunate. Following the opening bell on June 24, 2016, Wall Street almost immediately dropped 500 points.
Finally, Britain’s departure from the European Union forced the Federal Reserve to revamp its plans for interest rate hikes in 2016. In late 2015, the Federal Reserve projected raising rates four times in 2016, which would indicate recovery from the “Great Recession.” The first rate hike occurred in December of 2015, and was the first increase to occur in almost a decade. However, with uncertainty in the global markets, the Federal Reserve has scaled back its plans and may now only be calling for one rate hike in 2016.
Prepared by Ashley E. Trank