The United Kingdom voted to leave the European Union in a referendum on Thursday, June 23.
The European Union is an economic and political partnership creating a single market which allows for the free movement of goods, capital, services and people to its member states, as if it were a single country. The referendum, which is a vote held among nearly all people old enough to vote, was a close ballot with 52 percent of those polled voting to leave and only 48 percent voting to stay. “Brexit” is a term now being used as shorthand to refer to the U.K. leaving the EU.
However, just because the vote was passed does not automatically make Brexit take effect. The U.K. must now invoke Article 50 of the Lisbon Treaty which would force the process of withdrawing to take effect and starts a two-year period of negotiation which would be used to determine paying debts and creating the new laws for the U.K. during this two-year period and until the U.K. ceases to be a member of the EU, their law still stands.
Most of the changes to everyday life in the U.K. are still dependent on what is agreed upon by the new government and the EU, and whether or not they will remain a part of the single market system. The single market system was not completed in its entirety until 1992, with the main idea being to increase trade, create jobs and lower prices. This system created standards and rules that were designed to level the playing field for member states.
Critics of the EU say it creates petty regulations and removes control from the members hands. “Leave” campaigns focused largely on the price that the U.K. pays to other nations of the European Union. Many voters supporting the “Leave” campaign were led to believe that those 350 million pounds would be put towards their National Health Service. Others felt that leaving the EU would stop excessive immigration, and leave jobs and educational benefits for members of the U.K. only.
British Prime Minister, David Cameron, has resigned in wake of the Brexit vote. After leading much of the “Remain” campaign and then failing to convince the majority, Cameron said in his resignation speech that he would “do everything [he] can as prime minister to steady the ship over the coming weeks and months but [he] does not think it would be right for [him] to try to be the captain that steers [their] country to its next destination.”
The Brexit vote left the pound at its lowest level in almost 31 years, however trade between the U.K. and the U.S. only accounts for 0.5 percent of our economic activity. The connections between the U.K. and U.S. go beyond direct trade, and the domino effect of the global economy could mean a number of different things for Americans.
As the European Union serves as a structured trade channel, any rocking in its stability could cause global trade deals to be restructured and rewritten considering the entire EU is one of the largest trading blocs with both China and the United States. Most of the direct impact on American stocks come from consumer and business confidence. If Brexit continues the trend of global stock volatility it could make Americans reconsider their spending plan in favor of saving for a stock drop.
The pound’s decrease in worth because of the Brexit vote in turn makes the U.S. dollar a stronger currency. However, that strong dollar isn’t good for U.S. companies with business overseas. Stronger U.S. dollars means that products are more expensive and that weaker foreign currency means less to be spent on foreign goods. The U.S. business sector saw a profits recession for about five months last year and this surge on Brexit could mean a longer lasting profits recession.
The Brexit vote also creates difficulty for the Federal Reserve to raise interest rates, which is bad for benefit savers who seek out raised interest rates for the increase on profit from deposits. Central banks in other nations around the globe have lowered rates into the negative territory, which only furthers conversations of the Fed rewriting its entire playbook for the 2016 year.
Though history has been made, this is only the beginning of the impacts of the Brexit decision.