When British voters opted to leave the EU on June 23rd, their decision sent shockwaves across the world and an immediate effect was felt in the international financial markets. Stock prices nosedived and the British pound fell to a 31-year low against the dollar. he direct impact on America could be minimal as trade with Britain makes up only 0.5% of the U.S. economy. But there are fears that Brexit could start a chain reaction with citizens of other European countries also demanding to leave the EU.
The European Union is a critical part of the world economy with a GDP of over $16 trillion. It is the top trading partner for 80 of the world’s countries. If the EU falls apart, the repercussions in America could be great as it would cause volatility in the world’s stock markets, which in turn could affect the spending plans of American businesses and consumers.
Jim O’Sullivan, chief economist at High Frequency Economics, says, “The keys to whether the U.S. economy is affected significantly will be whether equities tumble enough to have a major impact on business and consumer confidence.”
The American economy could be severely affected if the dollar continues to gain against the world’s currencies. A strong dollar makes American exports expensive, hurting sales and profits of U.S. companies that depend on overseas markets for a large part of their business.
Describing how a strong dollar might affect American businesses, Matt Lloyd, chief investment strategist at Advisors Asset Management, says, “The biggest impact economically is the dollar impact. If the dollar surges on [Brexit] for any period of time, then you’re going to see fears of the profits recession lasting longer.” [Read more…]