Brexit: How Will It Affect U.S. Trade?

This month on the blog we are taking an in-depth look at Brexit and the effects that UK withdrawal may have on the global economy. Now, here is a look at the impact that Brexit could have on US trade specifically.

Back at the end of June when Brexit votes had just been counted, economic experts were making predictions about how Brexit would affect trade, both between the UK and Europe and between the UK and the US. Many suspected that Europe would strike a tough deal with the UK, restricting free trade as a warning to other EU member states that might be considering withdrawal. If that became the case, then the UK would surely trade less with Europe, opening the market for other countries to fill. The US would be well placed to expand in the UK trade market, then, what with the common language and close historical relations. This would give the US a major opportunity to benefit from more exports, and possibly even better deals on imports. So ultimately, for the US, Brexit could mean a free trade agreement with the UK and significantly expanded trade.

There were other predictions as well. Just about everyone agreed that there would be initial financial turmoil around the globe. Many predicted, however, that this turmoil would create a worldwide flight to safer assets (i.e., American assets over European ones), giving a boost to the American stock market and an inflow of money to the US. Many economic experts also predicted that international corporations would move their operations out of Britain and into mainland Europe in order to keep their facilities within the EU. This doesn’t benefit the US directly, but it could mean that London will slip as the world financial capital and that New York City can rise to take its place.

Now the question is, if economic experts were predicting these things for U.S. trade back in late June, are they still predicting these things now? Though ultimately only time can tell, so far it seems that these initial predictions are holding some clout. It’s important to remember, however, that as economic experts debate back and forth on how Brexit will affect the US economy, the potential benefits and drawbacks of Brexit are likely overstated. For now, expect to see perhaps a small gain in world financial market share for New York, and maybe a small boost (less than one percent) in US GDP.