When voters in the United Kingdom shocked themselves and other Europeans this summer with the choice to exit their decades-old political and economic union, the so-called “Brexit” caused a wave in currency and stock exchanges around the world, as well as toppling the British prime minister. The markets have largely settled out after the surprising prospect of a looming tectonic shift in European Union (EU) dynamics, but the implications are yet to be fully understood – especially for the American economy.
U.S. Fed Chief Janet Yellen predicted Brexit would “negatively affect financial conditions and the U.S. economy.” How so? What does the exit of the United Kingdom mean for the United States’ economy? How will the $280 billion annual U.S. trade with the bloc be affected? What lies ahead in a new trade relationship with the UK?
Earlier this month, a distinguished panel of specialists addressed the many questions surrounding Brexit and the U.S. economy at a special presentation hosted by the Nashville Area Chamber of Commerce. Thad McBride of Bass, Berry and Sims moderated the panel that included Dr. Marieta Velikova, Belmont University economics professor; Amr El-Husseini, Lodestone Advisory Group CEO; and John Scannapieco, shareholder at Baker Donelson’s Nashville office and co-leader of the firm’s global business team.
The event was presented by the Chamber's International Business Council, the Tennessee World Affairs Council and Belmont's Center for International Business.
Though the panelists generally agreed that the UK economy will eventually regain its footing, they disagreed on how long that will take and how best it can be achieved. McBride summarized that it is clear uncertainty still reigns two months after this historic vote. About the conclusions, he said, “There may nonetheless also be opportunities for U.S. companies to invest in or extend operations in the UK, particularly given the weak pound and the fact that the UK continues to be an important jumping-off spot for doing business in North Africa, the Middle East and even Europe.”
The conversation about opportunities turned to the Nashville perspective. Lodestone CEO El-Husseini made three points: “First, foreign capital movement away from the UK will seek a safer home, and the U.S., especially a city like Nashville, may play an important role in attracting some of this capital.” He added, “Keep an eye on investors. We believe there will be a number of very attractive valuations for American medium- to long-term investors in various UK economic sectors due to the volatility of the stock market, the devaluation of the British pound and the performance of the economy as a whole.” El-Husseini’s third point was, “Some of the existing operations of U.S. or international companies now operating in the UK are already discussing the possibility of relocating elsewhere.” He added, “Nashville could play an important role in attracting some of those opportunities.”
Financial services will be a key industry affected by the results of the Brexit talks, according to Velikova. She said, “Businesses are being proactive and hedging on the outcomes of negotiations between the UK and European Union.” Velikova added, “It is key to understand all the economic, financial, regulatory and supply chain complexities to be prepared for challenges and capitalize on opportunities that present themselves.”
The importance of the UK-EU negotiation environment was affirmed by Baker Donelson’s Scannapieco, who said, “Brexit may cause short-term volatility in the UK, Europe and elsewhere due to the uncertainty ahead; stability will begin to return once the UK government announces its negotiation position in early fall, [and] the EU responds and the parties commence talks regarding the UK’s exit.”
What should American businesspeople be prepared for when they contemplate the post-Brexit environment? “For U.S. companies currently operating in the UK, we believe this is a good time to go back to the drawing board, reevaluate their business model [and] activities, and make longer-term decisions that can extend beyond the next couple of years,” said el-Husseini.
The factors that made the UK a great place to do business before Brexit still stand, said Scannapieco. He noted its attractions: “Low corporate tax, flexible labor markets, competitive business environment, English language, common law and a strong skills base. Businesses that do not panic, but remain flexible, will not only survive, but should thrive.”