Economists are also worried about Brexit’s global repercussions. Janet Yellen, chairwoman of the U.S. Federal Reserve told Congress earlier this week that a vote to exit the European Union could have “significant economic repercussions,” by increasing uncertainty and fueling volatility in world markets. “That would negatively affect financial conditions and the U.S. economy,” said Yellen.
Global financial markets are already in a sell-off. Elena Cahill, president of commercial and industry consulting firm Globele Energy in New Haven, Conn., says the immediate impacts of Great Britain’s exit from the European Union will be “uncertainty and fear.” According to the US Census Bureau, Britain is the fifth-largest buyer of U.S. exports with an estimated $56 billion in purchases last year. Deloitte also reports that London is home to 40% of the European headquarters for the world’s top 250 companies.
“It will have a big impact on European companies, but the real problem now is the uncertainty. I do think that it will be temporary and the market will respond to uncertainty as it normally does,” said Cahill, presumably by pulling back somewhat in the short-term.
Yet the direct impact on U.S. companies will be dependent upon the sector in which they operate. Reuters reports that many U.S. companies, including Penske Automotive Group, Molson Coors and PPL Corp., have downplayed the impacts Brexit would have on their business. On conference calls and events with U.S. companies in early June, many American corporate executives said the main effect would be a temporary currency risk as they believed issues would be resolved in the estimated two years it will take to draft an exit plan. Molson Coors’ CEO Mark Hunter said during a conference call in May that he didn’t think it would have any real effect on demand patterns in the UK.
Cahill also does not see any significant impact on U.S. companies, even those who operate in Europe. “None of this is going to cause much of a stir in the United States. I don’t think it’s going to be so disruptive to the trade bloc that any consequence would fall on a manufacturer in Connecticut who might be selling their goods in Europe,” she said.
However, some sectors could face significant headwinds. The financial services industry could be tremendously impacted as many companies serve the European market from London. Lloyd’s CEO Inga Beale told CNBC.com in mid-June that Brexit was one of the biggest risks to the global economy. As reported by CNNMoney.com, JP Morgan Chase CEO Jamie Dimon warned employees prior to the vote that leaving the EU would be a big concern for banks and companies that use “passporting” to serve the entire European market from London. “At a minimum, a Brexit will result in years of uncertainty and I believe that this uncertainty will hurt the economies of both Britain and the European Union,” he said.
It is now expected to take two years for the European Union to draft a formal exit plan for the withdrawal of Great Britain. Cahill says it is likely that there will be a “number of concessions” made to ensure a smooth exit that will not shake the global economy. She says there are frequent shifts in tariffs and that don’t negatively impact commerce. “I trust there will be enough intelligence involved. No one wants to put the globe back into a recession and I think there will be compromises made, specially in the finance sector which is Great Britain’s most important product,” says Cahill.