Understanding the ramifications of leaving the EU.
By Eric Bishoff
It is first important to consider what motivated United Kingdom citizens to vote "yes" to Brexit, a decision to leave the European Union. This change came about for many reasons. Talk of turning away Syrian Refugees and limiting the number of immigrants into the country is a common theme for those in the "leave" camp. Many dynamics are at play, but at the core of this issue is a divide between social classes-the old versus young and the educated versus the working class.
It was an emotionally charged move based on a reaction versus taking in all of the facts and understanding the ramifications of leaving. Some would say that this decision lacked sound judgment. What we are left with is much uncertainty.
What does Brexit mean to the UK and the rest of the EU? The UK is forced to negotiate new agreements with the EU as well as other nations around the globe.
This leaves political, legal and business relationships inside and outside the UK in doubt. The UK has two years to make the transition, including renegotiating all affected trade agreements. Although, there is room for an extension on this deadline according to The Wall Street Journal.
Business between the UK and the US is large, but dwarfed in comparison to its trade with the other 27 EU member states. The UK will be able to forge new agreements with the EU as a whole instead of with each country individually. However, there is nothing stopping the EU from making an example of the UK for other countries considering an exit. For example, they have the power to tariff UK exports.
Where could this hurt the most? Germany is both the UK's largest exporter, and its second largest importer after the US. Germany is not keen to harden such a strong business relationship. However-even as the EU's largest economy-Germany will have to bow to whichever trade agreements are negotiated for all 27 member states.
What will happen in the meantime? Many of UK's political leaders are resigning to allow someone else to work through these developments. The new leaders will face many challenges as they work through this transition. The growth of the economy in the UK will most likely stagnate or decline. This means that the trade between the US and the UK could slow. This change may not have a major impact here in the US, but it may elsewhere.
How will this change the UK? This may be the more concerning point. The UK is made up of England, Northern Ireland, Scotland, and Wales. Will Scotland once again consider leaving the UK, as it did in 2014? Will others want to leave, as well? The situation generally presents nothing but new issues with unknown resolutions.
What about the US? The markets are stabilizing in the days since the initial reaction to the "leave" vote. The likelihood of an interest rate increase has decreased, and the chances for a cut to have increased. There are many other unanswered questions, including what affect Brexit will have on the economy of the EU and the global economy. Time will be the only thing to focus on as the fallout of Brexit takes place over the weeks, months, and years ahead.
Eric Bishoff is president and CEO of the Bishoff Financial Group.