October 10, 2016
How Brexit will effect U.S. Businesses
The United Kingdom’s controversial referendum and impending withdrawal from the European Union (commonly referred to as Brexit) caused shockwaves around the world. Ushering in turbulence and volatility in the European marketplace, the British exit will carry economic implications well across the pond, affecting U.S. businesses large and small.
As reported by CNN.com, Janet Yellen, chief of the U.S. Central Bank and a top monetary policy setting official, warned that Brexit “would negatively affect financial conditions and the U.S. economy.” And however dire that proclamation may be, small businesses in the U.S. may find that there are some positive effects among Brexit’s negative.
- Businesses may anticipate a brain drain from the United Kingdom whereby educated professionals move to the U.S. in order to pursue their careers. This influx of Brits would result in a more competitive labor market, creating opportunities for U.S. businesses to hire top talent.
- Due to higher risk and lower interest rates, more money from Europe will be invested in the U.S. market. Businesses may be wise to seek out foreign capital or investment for their business.
- The E.U. may relax some of the strong regulations that prompted the U.K.’s exit after similar campaigns for referendums have begun cropping up from politicians in other European countries. Decreased regulations may allow U.S. businesses that were previously unable to participate in the E.U. marketplace, opening a new population of European consumers to their products.
- As would be the case with an influx to the talent pool, the competition in many different niches for U.S. businesses may increase as British business owners seek to move operations.
- According to Willie Schuette of The JL Smith Group, should the duplication of the U.K.’s current trade deals not occur, small businesses may be forced to “separate European distribution; meaning lower margins and higher shipping costs.” Further, contractual agreements “will be impacted” as “new rules, agreements and laws” are rewritten.
- Small businesses have to adjust plans to account for long-term uncertainty regarding the actual effects of Brexit, which could take up to two years to finalize. Jeff Stibel, Vice Chairman of Dunn & Bradstreet, described how businesses typically operate well in good economic times and have created back-up plans so that they may survive the tough ones, however “[businesses] are uniformly bad at operating in times of uncertainty.”
- The British pound has fallen after Brexit, while the U.S. dollar rallied. Although a strong dollar is good for American travelers, it will cause U.S. products sold overseas by businesses to be more expensive, and thereby less attractive to consumers.