Brexit

Why Brexit could be a disaster for American companies

By Tina Irgang

After news broke in the early morning hours of June 24 that the British public has voted to exit the European Union, markets went into a nosedive. The outcome of the vote is a major headache for American companies with U.K. locations, who have suddenly lost easy access to the rest of the continent. But it could also have implications for the rest of the American economy.

“Britain’s exit from the European Union shocked global markets and unleashed uncertainty,” reports The New York Times. Germany’s DAX, Japan’s Nikkei and other major stock indices saw major slumps Friday morning, while the British pound fell to its lowest value in more than 30 years. It’s a trend that could spell trouble for the dollar as well.

“As skittish investors pull out of U.K. and European markets and pour into the safety of U.S. assets, a falling pound and euro could cause the dollar to surge, further suppressing demand for American exports,” says The Wall Street Journal.

At the same time, the market uncertainty unleashed by the vote “could well prevent the Federal Reserve from raising interest rates as planned this year, and might even provoke a new round of emergency policy easing from all the major central banks,” says Reuters.

Brexit jeopardizes American access to markets

This much is clear: American companies employ more than a million people in Great Britain, and the U.S. is the country’s single largest investor. “Many firms consider it the gateway to free trade with the 28 nations that make up the E.U.,” notes The Washington Post. “A Brexit would jeopardize their access to those markets, potentially reducing revenue and forcing some firms to consider relocating their European operations elsewhere.”

Under E.U. rules, American companies can operate anywhere in the trading block as long as they set up operations in one of its 28 member states, notes CNN Money. Companies that chose to locate in Britain based on a common language and easy travel from the U.S. will likely no longer be able to take advantage of that rule.

Who will see the biggest Brexit effect?

While any company dependent on exports is likely to see some repercussions from Brexit, there are some industries and companies that will be more significantly affected than others.

Big banks are certainly among those who will reconsider their British operations, which have traditionally served them as a gateway into other European markets. Jamie Dimon, CEO of JPMorgan Chase, has already said that the bank “may have to consider cutting jobs in the U.K. and adding more on the European continent,” according to CNN Money. The bank has more than 16,000 employees in the U.K., according to CNBC.

Other American giants could be shaken by the Brexit vote as well: “Companies with the highest sales exposure in the U.K. include eBay, Ford and Xerox,” says CNBC. Penske Automotive Group, the transportation services company, relies on U.K. operations for a third of its revenue.

In short, the fallout from the Brexit vote will be significant for American companies. However, the precise details of what happens next are hard to predict. After all, you’d be hard-pressed to find a precedent for a major economic player breaking away from the world’s largest trading block.

As The Times puts it: “Britain’s vote to leave the European Union has set in motion an unprecedented and unpredictable process that threatens turbulence and potential crisis — for Britain, for Europe and for the global economy.”

Tina Irgang is the managing editor of SmartCEO magazine and SmartCEO.com. Contact her at tina@smartceo.com.