After months of negotiations, the UK and the EU finally agreed on a Brexit deal. Amid the surrounding saga, Brexit is not only a big deal for Europe but also America.
For those that have still not understood the term Brexit, it is a term coined from two words, “Britain” and “exit” and describes the United Kingdom’s (UK) separation from the rest of the European Union (EU).
Even though the UK first joined the European Economic Community in 1973, and became a part of the European Union in 1993, there was always opposition to its joining within political circles. Besides refraining from joining the Schengen agreement, which removes internal border controls within EU countries, the UK also kept its currency – the pound sterling.
The 2008 financial crisis increased the opposition to the EU within the UK. Migrants from poorer EU states continued to flock to the UK, and fears of refugees flooding the country from Africa, the Middle East, and Syria drone the discontent. The referendum for Brexit was announced in 2012 but was finally held in 2016.
Even as a deal has finally been reached this week, there are likely to be complications with the EU. Dialogues between the former partners are sure to continues, but why should Americans care?
Trade between the UK and the US
Britain was hoping to reach a trade deal with the US before the end of the year because Trump remains a strong supporter of Brexit. It was prevented from holding formal negotiations with other countries while it still in the EU.
A potential UK-US trade deal is now possible, but with a few potential hurdles. These include the US’s strong opposition to Huawei which has access to the 5G network in the UK and the planned digital service tax the UK government plans to levy.
The UK is the 4th largest destination for exported U.S. goods and is also the UK’s 7th largest trading partner. It is believed an agreement between the two nations will boost the existing $260 billion trade. Increased exchanges of financial services, professional services, biotechnology, etc., are also expected. These were areas where EU regulations often disadvantaged trade between the U.S. and the UK.
The advantage for students studying in the UK
American students are drawn to British Universities, and the country is the leading destination for students looking to study abroad. If the Brexit withdrawal deal does not include reduced tuition fees, access to the 130,000 students from the EU could decrease. This will prove advantageous to U.S. students as more openings will be available at universities.
European stepping stone for U.S. companies
In the past, companies that wanted to trade in the European Union used the UK as their ‘gateway’. They would establish a UK base and then move on to trade with other countries in the EU trading zone. One problem that arises for American companies is the threat of double tariffs if their goods are first exported to the UK and then redistributed throughout the rest of the EU. Some existing trading contracts between multinationals in the two countries may need to be renegotiated or canceled, depending on their terms.
Impact of U.S. investments in the UK
Various sectors in the U.S. have invested in the U.K. and have derived 9% of global foreign affiliate profit from there since 2009. U.S. companies invested a total of $558 billion in the U.K. in 2014. One of the largest job markets of the UK is the U.S., with many Britons work there.
The American corporate global infrastructure is also heavily influenced by the UK, and this includes assets under management, research and development (R&D) advancements, and international sales. Affiliate earnings and stock prices of many companies may be affected, and many have moved or are considering moving their head offices to other EU countries.
Conclusion
The recent deal between the UK and EU is a clear indication that trade is more significant than politics in the EU right now. The agreement also improves the prospects of the long-term international trade between the U.S. and the UK, and it reduces the risk of ripple effects on U.S. businesses.
The fear of a no-deal alleviates the threat of a much weaker pound. This would affect the prices of U.S. goods in the UK, making everything far more expensive. Business interruptions are also less likely, and it appears the supply chains will not be as adversely affected as predicted if there was a no-deal Brexit. Investor sentiment is remaining more positive across the world, especially in the stock markets.
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