Britain’s Prime Minister, Theresa May, gave a speech about Brexit that showed off her intentions of Britain breaking free from the EU. The effects of her speech were immediately felt across the country and throughout the rest of the world.
Prime Minister May made a few things perfectly clear in the address. First, Britain will not be remaining in the single market. This means they won’t seek a status similar to Norway, where the country is not under EU jurisdiction but they still remain a part of the greater economic area and fall subject to unified tariff and immigration agreements.
This sentiment was clarified when May made it clear she would follow the wishes of the people and work to set immigration limits from the EU as early as possible. She also announced that Britain will be looking to renegotiate trade agreements outside of Europe across the board. For the first time since the vote, there are now clear expectations for how the two-year negotiation between Britain and the EU will take shape.
Immediate Impacts
That clarity is the primary driving force behind the recent value changes in the British Pound. Before the announcement, the Sterling had sustained long-term losses against the USD. The day of May’s address, the pound rose 2.9 percent against the dollar. This was the biggest one-day gain since 1998. Since the announcement, the Sterling has maintained its recent gains, suggesting that reducing uncertainty is the most important way to drive the British economy.
The other immediate impact was in Europe’s response to the announcement. Those responses were varied, with Germany actually making hopeful remarks. Ultimately, the narrative from Brussels is that the full scope of negotiations will be slow and convoluted, regardless of Britain’s goals. Brussels has made it clear that they don’t expect the trade deals to be finalized within the two-year window that has been set aside for Brexit.
In the U.S.
Now that we have an idea of what exactly has changed, we can get to your primary concern: how it impacts us. The most important part of U.S. – British relations is that Trump won the presidency. Unlike the previous administration, he won’t necessarily favor the EU in trade deals, and he has gone on record inviting Britain to renegotiate terms with the U.S. In fact, this falls perfectly in line with Trump’s international trade goals, and you can expect him to take full advantage of the situation.
There is also heavy potential for the situation to reignite the relationship between the U.S. and Britain. If the EU comes down hard on Brexit, the Commonwealth will be more reliant on U.S. trade. In short, the two countries can lean on each other to force other members of the international community to fall in line with rising populist movements.
Predicting the Future
In the long term, things are still a bit hazy. Ultimately, how Brexit will impact the rest of the world depends on how Britain fairs after the deals are signed. If Britain does well, you can expect it to ignite separationist sentiment in the EU.
While it may not immediately spell death, it would be hard to imagine other countries refraining from considering their own exits. This is doubly important as the populist candidate is currently leading polls in the French election. As France is the second-largest economy left in the EU, their exit could hasten its dissolution.
On the other hand, if Britain gets bad deals and suffers economically, Britain will be heralded as an example against populism in general. It could impact the French election and strengthen the resolve of the remaining members of the EU.
It could also embolden countries to be more resistant to negotiations with Trump. That said, the U.S. economy carries substantially more bargaining power than Britain.
Final Takeaways
We just played a lot of “what if,” but there are a few things we can say with confidence. First, Britain is further proof that populism can succeed, and the fast rebound of the Sterling shows that the status quo isn’t necessary. Major changes will always cause short-term loss, but there is currently no evidence that Britain is doomed over Brexit.
Secondly, watching how negotiations unfold will be important, because they are sure to have at least some influence over the slew of negotiations that Trump is going to bring before international markets. The one thing that is certain is that real, substantial change is upon us, and if we take every opportunity to learn from Britain and other examples, that change can be everything we hope from it.
Regards,
Ethan Warrick
Editor
Wealth Authority
