How Brexit affected US economy?

June 23, 2016 will be remembered in the European history as a day in which a novel idea of “Brexit” was created. Brexit is a scary combination of two words “British” and “exit”. On this fateful day, UK chose to relinquish its membership with European Union. Brexit finally took place on January 31, 2020. Although, the full economic implications of Brexit are yet to see the light of the day, its adverse effects are already rising from the horizon. It is indeed worth million of dollars to ask how Brexit affected US economy.  

EU-UK Trade after Brexit

On December 24, 2020, an interim free-trade agreement deal was struck between UK and EU that ensures that two sides can trade goods and merchandises without tariff and quotas. This is nothing more than a cosmetic redressal as 80% of UK economy is dependent over trade in services with EU. It goes against the “no-deal” Brexit, which may proves very dire for UK economy. Despite some tariff/quota-free trade between EU and UK, bilateral trade is subject to custom checks, signaling commerce will not be as smooth as it was before Brexit.

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Although both EU and UK are trying hard to avert a “Hard Brexit”. It would be naive to expect it not a difficult transition. British government has already warned hard times ahead of Brexit deals. After initial Brexit fiasco, Prime Minister Boris Johnson deserves full points for his pledge to “Get Brexit done”. This pledge, however, is not without an economic and political cost as Brexit has forced the British GDP be slashed by 4%. There is a cruel question mark over the unity of UK. Secession sentiments are on the rise again in Scotland as it was during referendum times in 2016. Scots voted against the secession from EU. Their anti-Brexit feelings have strengthened by now.

The Effect of Brexit on the US

US corporations across a wide spectrum of sectors and industries have already made considerable investments in the UK over many years. US corporations have sought around 9% of global foreign affiliate profits from the UK since the year 2000. Besides, US businesses have made investments worth $588 Billion in the UK in the year 2014. On the manpower front, US companies are the UK’s biggest external job markets. The United Kingdom has made significant contribution in corporates America’s global infrastructure development from assets management, international sales and research & development (R&D) advancement. On the other hand, US entities have treated UK as a gateway for penetration to other EU countries. Needless to say, Brexit will put a dent on the affiliate earnings and stocks prices of many US companies strategically ranged with the UK. It is the high time that US companies are reviewing their ties with UK and other EU members.

Transition period, which finally ends on Dec 31, 2020, raises more concerns for US companies with business interests in the UK and EU. The end of the transition period may bring dire consequences in many varieties of outcome that affect trade regulations, labor and immigration laws and above all tariff and duties. The US based companies, which have commercial interest in the UK, will find themselves under tremendous pressure due to constrained cash flows, labor cost and access to capital. Another significant political-cum-economic impact would be chaos of US-UK geostrategic partnership. Brexit could constrain USA to prefer deal with EU-27 and it may redefine its foreign policy toward United Kingdom. A political impact of Brexit on UK is that it may tarnish its substantial political power in European domestic and foreign affairs.

In the wake of mounting uncertainty about what Brexit will bring for US businesses, it is essential that any business house with interest in the UK and EU has contingency plans in place to meet the consequences of Brexit deal.