What Does Brexit Mean for America’s Economy?

Last Thursday, British voters chose to leave the European Union, 52 percent to 48 percent. The vote will have significant political implications in the U.K. and may tilt the balance of influence in Brussels, but it is likely to have little lasting economic impact on Americans.

The U.S. exported $56.4 billion worth of goods to the U.K. in 2015, and imported $57.8 billion worth from the U.K.

The U.S. economy is linked to the British economy through trade (including tourism) and global finance. For most Americans, the economic links are much less important than the cultural connections we share. Neither will be deeply shaken by Brexit.

The U.S. exported $56.4 billion worth of goods to the U.K. in 2015, and imported $57.8 billion worth from the U.K. That makes the U.K. our seventh-largest trading partner, accounting for 3 percent of total trade. Canada, by contrast, accounts for 15.4 percent of total U.S. goods trade, with $575.5 billion of combined exports and imports.

London and New York are widely recognized as the top two centers for global finance, and trillions of dollars of investment flow through each city coming from and going to every part of the world. The close ties are reflected in the fact that the U.K. is America’s No. 1 exporter and importer of services. When an American investor hires a British broker to buy Russian bonds, it shows up as an import of services to the U.S. from the U.K.

If Brexit were to have a major impact on the U.S. economy, it would be through disruption in global financial flows.

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In the long run, the global financial system is likely safer with London politically independent of the European Union. European Union rules do not seem to foster financial competitiveness. In the Global Finance Competitiveness Indicator ranking—which measures local expertise, regulatory climate, and other factors—the EU performs poorly: six cities in the U.S. are ranked ahead of the top EU city—Luxembourg. The financial capital of the EU, Frankfurt, which hosts the European Central Bank, is ranked between Sydney, Australia, and Shenzhen, China.

Six cities in the U.S. are ranked ahead of the top EU city—Luxembourg

Separating London from the many EU cities diversifies the regulatory environment. If an independent British government proves hostile to finance, financiers can move operations elsewhere. And if Brussels continues to be a regulatory drag on finance in the EU, banks can move more of their operations to the U.K. and Switzerland. In the long run, a diverse political ecosystem can allow more beneficial innovation and competition.

Of course, Brexit will have its costs. One of those—a large drop in the value of the British pound—has already taken place. To avoid economic losses at home, Britain’s new leadership should maintain and expand economic freedom and open markets. However, even if Britain’s new leaders enact anti-growth policies and hurt their own economy, the spillover to the U.S. will likely remain modest.

For Americans, there’s an easy way to take advantage of Britain’s short-term turmoil: Take a vacation to the U.K. with the pound cheap, Britain is more affordable than it has been in years. I recommend the Lake District.