As U.K.-EU trade talks resume four years after the British referendum to leave the European Union, how will Brexit affect a U.S. economy embattled by the coronavirus and global recession?

Brexit means Brexit – at least that’s what former U.K. Prime Minister Theresa May told the British public in 2016, shortly after the shock referendum result where 52% of voters decided to bid “adieu” to the European Union.

But what does Brexit mean for the rest of the world?  For some hungry souls, Brexit means breakfast but perhaps they’re just craving an old-fashioned English fry-up. The coronavirus and subsequent global lockdown is a more pressing concern for economists than egg and toast – although, with almost a third of workers in the British food industry hailing from countries in the EU, critics fear that Brexit could bring about a premature end to the English sausage.

Up until now, negotiations have only covered the divorce. With any chance of reconciliation out the French window, talks between the U.K. and the EU are resuming their third round via video until Friday, ahead of a June summit that will determine whether the deadline for an agreement should be extended after the end of December.

Global uncertainty and economic chaos

Global uncertainty and economic chaos in the wake of the pandemic has added to the challenge of negotiating a final settlement. Brexit is a profoundly political project, where concern for the economy has not always appeared the biggest priority for the British government or voters – but the rest of the world is now taking note of its own bottom line.

What are the global economic implications?

The short answer is, there’s simply no way to know yet. Chip Roh, a former U.S. Trade Representative official specializing in trade negotiations, speaks for many when he says: “The U.K. still hasn’t decided what it wants.”

This is a problem: The U.K. is the top destination for U.S. investment, last year importing over $69 billion American goods. Emanuel Adam, Executive Director of British American Business in London, puts it plainly:

“A weaker U.K. economy cannot be in the interest of the U.S.”

Uncertainty, both political and economic, has characterized the last four years, reaching a climax last summer when U.K. Prime Minister Boris Johnson seemed ready to take the U.K. out of the EU without a withdrawal agreement.

Global investors and companies need to know what the future U.K.-EU relationship will look like because it will directly affect their own commercial decisions and trade flows.

At that point, the pound fell to below $1.20 – its lowest level since 1985. (A far cry from the five years before the Brexit referendum when the pound was trading between $1.50 and $1.70.) Fearing the worst, many foreign businesses moved or canceled investments or withdrew from the U.K. altogether. A great number of U.S. financial institutions set up affiliates in the EU.

According to David Henig, a former EU trade negotiator, this is because,“The U.S.-U.K. relationship is more about investment than trade.”

The U.S., along with much of the English-speaking world, has long seen the U.K. as a ‘bridge’ into the EU. If that bridge is shaking, companies will cut out the middleman and protect themselves by investing in the EU directly.

U.S. gains from U.K. losses 

But the U.S. financial sector could benefit from this change in status quo, says Dmitry Grozoubinski, a former Australian trade negotiator.

“One source of comparative advantage for the City of London over New York has been its status as a beachhead into Europe. As that status grows tenuous, market share could drift across the Atlantic.”

A trade deal with Britain may be more limited in scope, but the U.S. may also gain in the arena of agriculture and meat exports.

Under current EU law, the U.K. bans chlorinated chicken and hormone-treated beef, which severely restricts U.S. producers.

The British government insists that those standards will not change post-Brexit agreement, but many on the U.S. side expect it to be an American red line – and the U.K. is likely to be desperate for a political ‘win’ if it has not achieved a satisfactory or popular deal with the EU.

“U.S. farmers already feel that they have fallen victim to the China trade wars,” says Roh.

“I don’t see President Trump throwing swing states such as Iowa, Michigan, and Wisconsin under the bus for the U.K.”

While it’s easy to identify benefits and potential drawbacks for U.S. agriculture, it’s harder to see where U.S. consumers might notice either a U.K. trade deal or Brexit more broadly.

Roh doubts that many new markets will open for British food imports, which will be expensive even without trade tariffs, and although British-made cars could become a little cheaper, the U.S. duty is only 2.5%.

Brexit will not affect U.S. consumers

The consensus is that Brexit will not affect global consumers even in its worst-case scenario. The U.K. is simply not big enough to cause a profound economic shock to anyone other than itself.

The real challenge is for global companies, particularly those who depend on exports: if U.K. demand drops, those exporters could suffer. But the fact is contingency plans have now been years in the making.

Roh sums it up best: “The U.S. has benefited from success in the EU. It’s better to have rich customers than poor ones. But if Brexit goes badly, it won’t be the end of the world.”

Covid-19, however, may be a different matter.

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About the author

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Jonathan Lis is a political commentator. He writes for publications including The Guardian and Prospect Magazine and frequently appears on national and international TV to discuss Brexit and British politics.

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