How Will Brexit Impact the U.S. Economy and Jobs?

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June 27, 2016

UPDATE, 9:47 am: The Dow Jones dropped 180 points on the opening bell Monday, continuing the sharp decline from Friday when it dropped more than 600 points in the wake of the Brexit vote.

UPDATE, 9:00 am: “Day four after the seismic referendum result and the only thing that’s crystal clear is that the U.K. is in the midst of one hell of a political crisis,” Chris Scicluna, head of economic research at Daiwa Capital Markets, said in a note on Monday.

June 24, 2016

UPDATE, 2:05 pm: President Obama speaks at the Global Entrepreneurship Summit in California; “The people of the United Kingdom have spoken, and we respect their decision. The special relationship between the United States and the United Kingdom is enduring, and the United Kingdom’s membership in NATO remains a vital cornerstone of U.S. foreign, security, and economic policy.”

UPDATE, 9:53 am: At opening bell, the New York Stock Exchange dropped more than 400 points.

UPDATE, 7:30 am: Great Britain has officially decided to leave the E.U. Additionally, Prime Minister David Cameron has also submitted his resignation, though he plans to stay on until October to help “steady the ship”. However, economists are already seeing the value of the British pound plummet to the lowest it’s been in 31 years. Such drastic changes to the U.K. market will undoubtedly cause short- and long-term ripple effects around the globe. 

It will be interesting to see over the next few months how the U.K.’s departure from the E.U. is going to impact businesses, trade, the people that fill those jobs, as well as travelers in and out of the United Kingdom. Unfortunately, there are a few good guesses as to what will happen but no one knows exactly what the results of Brexit will be.

June 23, 2016

UPDATE, 5:16 pm: President Barack Obama warned that the outcome of Thursday’s referendum is “of deep interest to the United States” as well as a possible turning point for Europe. He urged British voters to remain because economic growth and terrorism efforts would be more effective with the U.K. in the E.U.

Why would a financial decision across the pond be bad for Main Street and Wall Street? In a nutshell, it would inject a high degree of anxiety into world markets, including the U.S.

You won’t see a bump in your paycheck or cheaper prices at the supermarket. But money may be easier to borrow as more countries increase investments in safe and secure U.S. Treasuries. At the same time, the U.S. stock market could see a downturn if European financial markets sour on an exit vote.

“Nobody knows at this point how the world would look like with the U.K. out of the E.U.,” said Emanuel Adam, head of policy and trade for BritishAmerican Business, which represents companies in New York and London.

“This alone creates an uncertainty that businesses don’t wish to see,” he told the Washington Post.

Marian L. Tupy, senior policy analyst at the Center for Global Liberty and Prosperity at the Cato Institute, believes there will be little impact.

“I think it would be highly limited, I mean the United States has global trade relations, not just with the European Union. The United States would presumably, very shortly, after Brexit, conclude every trade agreement with Great Britain and will continue to have ordinary relations with the European Union as before,” Tupy said.

The uncertainty of world markets would be a boon for investing in U.S. Treasuries, one of the safest and most secure investments. That infusion of money translates into ultra-low mortgage rates for American households no matter which way the vote goes.

Don’t start cheering yet.

The financial markets would bear the brunt of the immediate impact of a Brexit. The global unrest could affect U.S. stock markets where 50 percent of all Americans participate in their company’s 401 (k).

U.S. companies and others around the world warned of serious consequences if Brexit is adopted.

The heavy equipment giant Caterpillar, based in Peoria, has 9,000 employees and 16 plants based in Great Britain. Its equipment is exported throughout Europe eased by E.U’s open market. Brexit would undermine Caterpillar’s business model without the E.U.’s open marketing rules.

“Britain ought to stay in,” said Doug Oberhelman, chief executive at Caterpillar and chairman of the board at the U.S. Business Roundtable in Washington, DC. “Keeping that market together as a whole is better than not having it together.”

Ford’s U.K. division sent a letter to its 14,000 employees emphasizing the importance of staying in the E.U. for maintaining stability and preventing disruptions in trade.

Major banks, including Citigroup, Goldman Sachs, J.P. Morgan and Morgan Stanley, have donated hundreds of thousands of dollars to a British campaign to remain in the E.U.

It will take at least two years to fully implement Brexit, meanwhile the U.S. is closely watching the global markets.