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Nov 1, 2016

What U.K.’s ‘Brexit’ Means For The U.S.

Sponsored Content provided by Robert Burrus - Dean , Cameron School of Business - University of North Carolina Wilmington

In June of this year, the United Kingdom (UK) voted to leave the European Union (EU), move that gave rise to the term, “Brexit.” This successful referendum vote gave rise to fears about the future of the British economy and what it means for the US.

Both the Bank of England and the British Chambers of Commerce cut their projections of economic growth next year and further into the future. Investor confidence fell dramatically due to rising uncertainty regarding the relationship between the U.K. and the EU. In the global economic environment, American business leaders naturally wonder if these negative economic effects will spill over to the U.S. 

Early signs from data and policymakers suggest only a modest effect from Brexit on the U.S. economy, at least in the short run. The U.S. unemployment rate is relatively low at 4.9 percent and economic growth shows no substantial signs of weakening. 

In their July meeting, monetary policymakers at the Federal Reserve expressed concern about the domestic effects of a “slowdown in [foreign] economic growth” due to Brexit.  However, this concern was alleviated by “expectations of greater policy accommodation” from the Bank of England, along with “positive US economic data releases.” It appears that the U.S. economy dodged the Brexit bullet in the near-term.

However, the long-run effects of Brexit are more uncertain. Most economists agree that increasing trade barriers and limiting international capital flows can decrease the long-run growth outlook of an economy by limiting its access to cheaper goods and more foreign investors. This reasoning is reflected by the downward revisions of expected growth from U.K. economists and policymakers.

The UK’s participation in the EU allowed their economy to benefit from the free movement of goods and services, as well as labor, across borders. Brexit could potentially remove this benefit, depending on the resolution reached by U.K. and EU policymakers in the coming years.

From a traditional economics perspective, the true danger to both the U.S. and the global economies comes from more countries following the path of nationalism paved by the U.K. The implementation of isolationist policies could undo the global trade network, which has made the world better off as a whole over the past 30 years and led to a sustained period of lackluster global growth. 

One country pulling back from globalization will only have minor effects on the world economy, whereas a number of countries choosing to isolate themselves will multiply the downward effect on growth.

Of course, global economic integration comes with costs, including reduced economic sovereignty and, often times, concentrated transition costs. But countries can work to overcome these difficulties through effective regulatory policies and the frameworks set up in international trade agreements. In the academic community there is little argument that trade on the whole is good. The debate centers on how to smooth the transitions.

Robert T. Burrus, Jr., Ph.D., is the dean of the Cameron School of Business at the University of North Carolina Wilmington, named in June 2015. Burrus joined the UNCW faculty in 1998. Prior to his current position, Burrus was interim dean, associate dean of undergraduate studies and the chair of the department of economics and finance. Burrus earned a Ph.D. and a master’s degree in economics from the University of Virginia and a bachelor’s degree in mathematical economics from Wake Forest University. The Cameron School of Business has approximately 60 full-time faculty members and 20 administrative and staff members. The AACSB-accredited business school currently enrolls approximately 2,000 undergraduate students in three degree programs and 200 graduate students in four degree programs. The school also houses the prestigious Cameron Executive Network, a group of more than 200 retired and practicing executives that provide one-on-one mentoring for Cameron students. To learn more about the Cameron School of Business, please visit http://csb.uncw.edu/. Questions and comments can be sent to [email protected].
 

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