The ongoing Brexit affair in the UK has been an interesting one to watch from this side of the pond. Britain’s apparent indecision about whether to stay in the European Union or leave it, or how to go about the process of leaving, has provided a welcome distraction from often-depressing political news closer to home. Many of the characters involved in the process could even be described as amusing, such as the eccentric pro-Leave figure Boris Johnson, who currently appears the most likely candidate to be the country’s next Prime Minister. There is nothing amusing about the potential impact of a No Deal Brexit on the US economy and businesses, though.
What Is A No Deal Brexit?
If you’re having difficulty understanding the terminology, you’re not alone. The precise implications of a ‘no deal Brexit’ aren’t clear to many people in the UK either, including several of their senior politicians. To put it simply, a No Deal Brexit is a scenario in which the United Kingdom leaves the European Union without agreeing on any future deal for trade or the rights of citizens. In theory, the UK would revert to World Trade Organization rules, and would be forced to pay significant tariffs to do business with the EU. Those who are against this outcome warn that without new agreements being signed, imports and exports between the UK and the EU would cease overnight, and there would be no clear rights for UK citizens living in EU countries and vice versa.
The situation is even more complicated than that, though. A No Deal Brexit would, in theory, mean that a physical border would have to be erected between the Republic of Ireland – which would remain in the EU – and Northern Ireland – which is part of the UK. Such a move is seen as likely to provoke anger in the historically troubled region, and endanger the delicate peace process between the two nations. There is no great appetite within the UK, or within Ireland, to see this happen.
As the nation is so divided, it’s hard to ascertain what the likely implications of a No Deal Brexit would be for the country. Ardent Remainers are adamant that it would lead to a doomsday scenario with food and fuel shortages, whereas Leave voters insist that everything would mainly be fine, if a little more expensive and inconvenient in the short term. Trying to predict the outcome of a No Deal Brexit is not so much like guessing the results of a coin toss as guessing the outcome of a spin of the reels on an online slots game, such are the number of touted scenarios. The difference is that this slot game is likely to cost a fortune to take a spin on, and you can only spin it once. Also, landing a win at mobile slots website like Amigo Slots makes you happy at least some of the time. It’s not clear that there’s a single Brexit scenario that a majority of people in the UK would accept as an outcome. Brexit is the slot that nobody wants to win.
How Will It Affect The US?
The first thing to bear in mind is that in the event of a No Deal, the value of the British Pound is likely to fall through the floor. It’s already approaching its lowest point since the mid-1980s, when it almost hit ‘one to one’ parity with the dollar. Should a No Deal Brexit happen, the pound would be worth less than the dollar for the first time in living memory. That would flip the value of international trade agreements on their head, and make any stocks held in British-based companies volatile. Put simply, if you or your company conduct business or hold investments within the UK, their worth may be about to fall off the edge of a cliff.
There’s also a threat to US GDP growth because of the likely global market volatility that would come with a No Deal Brexit. We’ve had a warning of this in the past, when the UK announced the results of its referendum in June 2016 on whether to stay in the EU. As soon as it became clear that the UK would be leaving, the Dow Jones average dropped by just over 5%. Initial forecasts from experts within the US felt that as much as half a percentage point could be lost from GDP growth. In the end, the markets quickly recovered – but that was only the referendum, not Brexit actually happening. The shockwaves felt from a disorderly Brexit would likely be far worse, and last considerably longer.
It’s inevitable that the impact of Brexit will be felt more keenly in Europe than in the United States, but that doesn’t mean there won’t be concerns for many American companies – especially those which sell consumer goods. There’s already some evidence that British customers are starting to turn to cheaper domestic products than more expensive imports, and the market for buying new cars has nosedived. If there’s a general economic downturn in Europe post-Brexit and people have less money to spend, that’s bad news for the export of goods to the area in general. Demand is likely to soften, and so profits are expected to fall. Europe is a huge export market for the US, and a weakening of demand there can only have negative connotations for the economy.
If your business is based in America and trades only in America, you likely have nothing to worry about. If you don’t have any investments in Britain or Europe – or with companies that conduct their own business in Britain or Europe – you may be in for a slightly bumpier ride than anybody has so far warned you to expect. If you think you may have liabilities, it’s probably worth getting in touch with your financial or business adviser and gaining reassurances that you’re well protected. As it stands, Britain is scheduled to leave the EU at the end of October 2019. That gives you a few months to get your affairs in order.