How a No-Deal Brexit Would Affect the US Economy

Julija A. Image
ByJulija A.
July 19, 2019

The upcoming UK election has put Brexit discussions on hold, but the looming deadline is raising questions among politicians, business leaders, and economists — where will the US be if it comes to a no-deal Brexit?

European leaders and the UK government have agreed to extend the deadline for the UK’s exit from the EU to October 31, but even after three years of heated negotiations they don’t seem to be any closer to finding a mutually beneficial economic settlement.

The tensions are taking their toll on the European and British economies, but the real difficulties are yet to come. Britain’s alliance to the EU is crucial for making any sort of trade deal between the two, and if no agreement is reached, financial markets across the continent are likely to suffer. While this is certainly bad for the UK and Europe, it does not necessarily need to be bad for America.

Brexit’s effect on the U.S. economy will depend largely on how the UK departs from the bloc, how closely aligned it remains to Europe, and who ends up becoming prime minister. Boris Johnson and Jeremy Hunt, the prime candidates, disagree about Brexit. Johnson says he intends to leave the EU by October 31 come what may, while Hunt seems to be more willing to tolerate further delays in pursuit of a better deal.

Both candidates are willing to make trade deals with countries outside the bloc, but negotiations are impossible while the UK is still in the EU. Outside of the EU, America is Britain’s biggest single-country trading partner. This relationship could be expanded, but President Trump is reluctant to negotiate anything until the UK resolves its Brexit problem. He has promised them a “phenomenal” post-Brexit trade deal.

According to the Office of the US Trade Representative, US goods and services trade with UK was measured at $262.3 billion in 2018, with exports at $141.1 billion and imports at $121.2 billion. This $19.9 billion surplus indicates that continued trade could be beneficial for America. Experts disagree, however, on just how beneficial it might actually be.

According to Capital Economics senior U.S. economist Andrew Hunter, America doesn’t have much to gain — or lose — from Brexit or from a UK trade deal. Exports to the UK account for only 0.7% of the U.S. GDP by year, so Britain would need to make a special effort to come up with a trade deal that truly benefits America.

The UK will presumably attempt to foster good relations to make up for losing the EU alliance, but Trump isn’t likely to agree to a deal right now. The gains would be insignificant unless the US got access to Britain’s National Health Service and agriculture sector, and both of these are non-starters from the UK’s political perspective.

A no-deal Brexit could cause a period of volatility in global markets, and if it persisted, it could potentially influence the US. The Dow Jones average dropped by 5% when Brexit was announced in 2016, but stocks quickly recovered and the economy remained unaffected in the long run. While most economists agree that a no-deal Brexit is bad news for everyone, America is likely to recover from the consequences quickly.

About author

Albert Einstein is said to have identified compound interest as mankind’s greatest invention. That story’s probably apocryphal, but it conveys a deep truth about the power of fiscal policy to change the world along with our daily lives. Civilization became possible only when Sumerians of the Bronze Age invented money. Today, economic issues influence every aspect of daily life. My job at Fortunly is an opportunity to analyze government policies and banking practices, sharing the results of my research in articles that can help you make better, smarter decisions for yourself and your family.

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