How The Outcome Of The Brexit Vote Could Affect The U.S. Economy
DAVID GREENE, HOST:
As we have been reporting this morning citizens in the United Kingdom are at the polls voting on whether to leave the European Union - a much anticipated vote. Among them is Joanna Barry (ph). She's a financial recruiter who explained why she is against exiting the EU.
JOANNA BARRY: I mean, it's complete uncertainty. It's just this huge black hole of uncertainty, so we're not leaving.
GREENE: It's a decision with implications for the United Kingdom, also for Europe and also for the United States. And let's talk about that with David Wessel. He's director of the Hutchins Center at The Brookings Institution and a contributing correspondent to The Wall Street Journal and also a frequent guest on our program. David, welcome back.
DAVID WESSEL: Good morning.
GREENE: So what is the impact that the so-called Brexit vote could have on on our economy here?
WESSEL: Well, it would probably be bad for the British economy in the short term. They're a big market for our goods but not that big. About 4 percent of all U.S. exports go to the U.K. If its economy's curt (ph) it's bad for us. If it spreads to Europe, it's even worse. Economists at Morgan Stanley say the reduction of U.S. exports to Britain and other things could hurt, could raise the unemployment rate here by two to four-tenths of a percentage point next year. But I think the more immediate risk is that turmoil on global financial markets as a result of Brexit could wash up on our shores.
GREENE: OK. So we're talking about if the economies get hurt, as some people predict, that might mean less exporting of U.S. goods and also just sort of general turmoil that could sort of spread here to the United States. So those are the two big things we're thinking about here.
WESSEL: Yes, but financial market turmoil could come pretty quickly. No one really knows what's going to happen if the Brits vote to get out of the European Union. There's a lot of contingency planning going on. I think the most interesting threat is that investors could leave the British pound. That means the pound would go down in currency markets. The dollar would go up. That's nice for American tourists planning summer vacations in Europe, but it could really hurt U.S. exports. Rising U.S. dollar acts as a brake on U.S. growth, so that's the most immediate threat.
GREENE: You know, we work - we in the United States - I mean, officials here work so closely with officials both in the U.K. and the EU on, you know, things like global finance regulation and creating economic stability in the world. I mean, did sort of - if this division happens, is there an impact there?
WESSEL: I think there is. I mean, a vote for Brexit will be seen - and rightly so - as a rejection of half a century of European economic and political integration, the possible dismantling of institutions that have kept the peace in Europe, particularly after the fall of the Berlin Wall. You can imagine a weaker U.K., a more inward-looking Europe. That would make it harder for the U.S. to do deals on climate change, as you pointed out financial regulation, terrorist finance. So I think there's a lot of fear in Washington that they would be so busy working on their own problems that they wouldn't be an ally of us - of ours in dealing with these really pressing global problems.
GREENE: And briefly, David, I mean, many British people we've spoken to in the lead up to this have pointed to parallels with the U.S. in the presidential campaign here and this just general frustration, feeling left out in a global economy. I mean, could there be a sort of a broader ripple effect if voters in the U.K. make this big decision?
WESSEL: In short, yes. I think it would amplify all the unease we hear in the U.S. that globalization is not helping the middle class, that trade and immigration are a problem. It would energize the people who are against those things. But maybe a vote for Brexit would also lead people to come up with more creative solutions for how do we get more people included in the benefits of globalization.
GREENE: All right. David, thanks as always.
WESSEL: You're welcome.
GREENE: That's David Wessel. He is director of the Hutchins Center on Fiscal and Monetary Policy at The Brookings Institution.
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