Brexit Could Seriously Affect U.S. Economy, U.S. Warns Against It

Connor  Hoffman
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Posted: Jun 15, 2016 6:00 PM
Brexit Could Seriously Affect U.S. Economy, U.S. Warns Against It

On June 23, The United Kingdom will vote on whether or not they want to remain a part of the European Union. A UK exit from the European Union could seriously hurt the United States' economy, and thus the U.S. lately has been trying to persuade the UK against such actions.

President Obama was one of the first to travel to the UK earlier this year to convince the British to stay in the UK.

Recently, many in the U.S. have ramped up their efforts to convince the British to check "yes" on their ballots next Thursday. Keep in mind, about one-third of U.S. sales in Europe happen in the UK, and the UK is the U.S.'s seventh largest trading partner. 

U.S. Treasury Secretary Jack Lew warned us on July 11 of just how a Brexit could affect the U.S. and other countries. "I see only negative economic outcomes," said Lew. "A Brexit would also put geopolitical stability at risk."

This exit could have even bigger implications for the European Union, and Megan E. Greene, the chief economist at Manulife explained exactly how serious this exit could be. 

"You could also end up having an existential threat to the European Union and then the impact on the United States would be even bigger and the market dislocations that follows would be much larger," said Greene. 

J.P. Morgan CEO Jamie Dimon earlier this month explained how a Brexit would seriously hurt not only his company, but also the global economy. 

"At a minimum, a Brexit will result in years of uncertainty and I believe that this will hurt the economies of both Britain and the European Union," said Dimon. "One realistic outcome is that we lose the ability to passport our banking and trading services into Europe. So if the UK leaves the EU, we may have no choice but to reorganize our business model here."

All of this speculation is already starting to negatively affect some of the world's economies. On Tuesday, yields on US Treasury bonds fell to a four-months low, and bond yields in Germany went into negative territory. 

Fidelity National Information Services, a financial technology company, has some predictions on how a Brexit may affect the U.S. economy. They predict that the S&P 500 would likely decline 5 percent, and volatility would increase by about 40 percent.  

The UK joined the European Economic Community (EEC), the predecessor to the European Union, in 1973, and ever since then the UK has been skeptical of if they should be involved in an European Union. They even held a referendum in 1975 on whether they should stay in the EEC, and an overwhelming 67 percent supported staying in the EEC. 

This debate would continue to happen for decades, but now it has gotten quite serious. The British are quite split on this issue, and it seems that the vote could go either way. An online poll conducted by TNS showed that 47 percent support leaving and 40 percent support staying in the EU. 

The Pro-European Union membership camp is being led by David Cameron and most of his wing of the Conservative Party, the Labour Party, the Liberal Democrats Party and the Scottish National Party. They're arguing that the UK has to be a part of the free market that the EU provides them. Cameron is also arguing that the recent compromises he made with the EU to allow the UK to limit immigration and increase competition are good enough to allow for the UK to stay in the EU. 

The Brexit camp is being led by the other half of the Conservative Party, the UK Independence Party and also other Euro-skeptic parties in Europe. They're arguing that the EU is burdening the UK with too many immigrants and too many regulations.

Let's hope the British make the right decision on Thursday because this decision's effects will be felt all across the globe, not just in the UK.