Making Sense of Brexit and its Impact on the US

By May 30, 2016 Newsletter No Comments

Brexit, which stands for “Britain exit,” is a movement that pushes for Britain’s withdrawal from the 28-member European Union (EU). Initial polls show that the British public is evenly split on the matter, and the country will conduct a referendum on June 23.

While it is hard to predict the outcome of the referendum, some believe that the “leave” side will win because the campaigners are very passionate and even those pushing for Britain to stay are not really happy with EU. In contrast, the opposing side points out that Britain will stay because the public fears the uncertainty that comes with Brexit.

How does the European Union Work?

The EU was originally created after the World War II to ensure peace. They believed that countries that are trading partners would not go to war against each other.

In 1950, six nations combined their coal and steel resources and the union eventually expanded to accommodate new members. Its population has now exceeded half a billion.

The EU believes its greatest achievement is the completion of the single market in 1992. It allows goods, services, money and people to move freely within the bloc, allowing businesses to set up shop and employees to find jobs in any member country.

The union eyes to boost trade, generate employment and reduce prices of products and services.

Why do people want to leave the EU?

To ensure a level playing field among all the members, the EU has to create common laws and impose rules. However, these resulted in “petty” regulations and intervene in the way members control their own affairs.

Brexit advocates argue that the union imposes too many rules on businesses. It also charges membership fees worth billions of pounds annually, but Britain believes it gets little in return. The UK belongs to the 10 member states who pump more cash into the EU budget than what they get from it, along with France and Germany. The biggest beneficiaries between 2014 and 2015 are Poland, Hungary and Greece. Read more

The mass migration of workers to richer countries from poorer ones also raised issues on the free movement rule, which removes visa requirements for those who want to live in another member country.

Pro-Brexit campaigners want the country to regain full control of its borders to cut down the number of migrant workers. They are also against the “ever closer union” movement, which they believe is similar to the creation of a “United States of Europe”.

Some business leaders believe leaving the EU would enable the UK to forge trade deals as an independent country instead of being just one of the 28 nations. Smaller companies also expect the Brexit to reduce red tape and petty regulations.

Instead, pro-Brexit ministers want Britain to join a European free-trade zone with Bosnia, Serbia, Albania and Ukraine.

Why do others want to stay?

US President Barack Obama, Prime Minister David Cameron and 16 members of his cabinet, and other EU members like France and Germany want Britain to stay in the EU.

They cite benefits from the membership, such as easier trade of goods and services.They also believe that the influx of young immigrant workers fuel the growth of the economy, helping pay for public services.

Most anti-Brexit campaigners fear the uncertainty and the economic consequences if Britain leaves the union. They think the nation’s status will be damaged by an exit, and that it is more secure if it remained partners with the 27 other members.

Bank of England Governor Mark Carney also said Brexit is “the biggest domestic risk to financial stability.” See more here

British Chancellor George Osborne also projected that the economy would contract by 6% if it withdraws from the union.

For businesses, remaining in the EU makes it easier for them to move money, people and products across borders.

How will Brexit affect the US?

President Obama has been urging the UK to stay in the EU. Almost all US companies are against a Brexit as they expect it to have a negative impact on their future investments, according to a survey by the British American Business.

American companies are the biggest inward investors in Britain with $558 billion in investments. The US is also one of Britain’s biggest employers, with more than 7,500 American companies hiring 1.2 million workers. You may access the survey here

“We are aware of a steady stream of cases where opportunities are in danger of being lost to create new jobs,” British American Business chief executive Jeffries Briginshaw said.

“As we move forward into potentially more risky and uncharted territory this is likely to become even more prevalent.”

Majority of the companies surveyed also said they are attracted to Britain because of its access to the EU’s single market. Despite this, most of them have no plans of pulling their operations out of Britain in case it leaves the EU.

What to expect after June 23?

The result of the referendum will not have an immediate impact. If majority of the British public voted yes to Brexit, the country will be given at least two years before it can leave the bloc.

Within that time, the nation will continue to follow EU treaties and laws, but it will no longer participate in any decision-making process. The transition period may take longer than two years, depending on the outcome of negotiations.

The result of the referendum is not yet legally binding, and Parliament would still have to pass laws to implement the exit. These would include repealing the 1972 European Communities Act.

Parliament would also have to ratify the deal, and the House of Lords and/or the Commons could vote to oppose the ratification.

In the meantime, existing EU-related laws in Britain would likely continue to be enforced until the government reviews them and chooses which ones to keep or repeal.

To see the latest poll results, click here

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