On June 24, America woke up to the news that Great Britain voted 52% to 48% to exit The European Union and that British Prime Minister David Cameron had announced his resignation in the wake of this referendum. Lord Jonathan Hill, the U.K.’s E.U. Commissioner who was closely aligned with Cameron announced his resignation about 24 hours after Cameron announced that he was stepping down. As anticipated, the U.S. Stock market responded badly to Brexit with the Dow Jones industrial average tumbling 611 points, or 3.4% to close at 17,400, the Standard & Poor’s 500 fell 3.6% and the NASDAQ composite fell 4.1%, collectively erasing $800 billion in U.S. market value.
The long-term impact of Brexit on the U.S. economy remains to be seen. According to CNN Money, the U.S. markets are in turmoil due to “Fears that the EU may be falling apart”. Marine Le Pens, the leader of France’s National Front, a national conservative party, has called for a referendum vote in France. There is also talk of potential referendums from Italy and the Netherlands. Since the EU is one of the U.S.’s largest trading partners, uncertainty about its future structure and solvency creates uncertainty and volatility within the U.S. markets. Secondly, volatility within the U.S. markets retards U.S. growth. If consumers and businesses don’t perceive their income to be stable, they will reduce their spending and investment. Thirdly, Brexit increases the value of the dollar. While a strong dollar usually is a good thing, it drives up the price of goods for companies, which sell products/services overseas. On the flip side, a strong dollar reduces the cost of imported goods into the U.S., which could potentially minimize consumer concerns about global market fluctuations and bolster spending. Finally, Brexit has created a new headache for the Federal Reserve in that they now have to revisit their rate increase strategy. Up until June the Federal Reserve was planning for one rate hike in 2016. However, if Brexit-related market volatility, reduced employer hiring and diminished consumer spending become patterns, the Fed is more likely to either consider no rate hikes or potentially a rate decrease this year.
It has also been said that Brexit will have an impact on the U.S. presidential election. Comparisons have already been drawn between Great Britain’s decision to exit the European Union and the rise of the Republican presumptive nominee Donald Trump. Of course, the person beating that drum the loudest is the real estate billionaire himself, who coincidentally arrived in Turnberry Scotland to christen a new golf course the morning after the Brexit referendum won. “I think it’s a great thing that’s happened, Trump commented about Brexit. “It’s an amazing vote, very historic. …People are angry all over the world. They’re angry over borders, they’re angry over people coming into the country and taking over and nobody even knows who they are. They’re angry about many, many things in the UK, the US and many other places. This will not be the last.” Protesters greeted Trump’s visit to Turnberry. Trump’s temporary ban on Muslims entering the U.S. following the San Bernardino shootings had previously been described as “divisive, unhelpful and quite simply wrong” by Prime Minister David Cameron and “repugnant and offensive” by Scotland’s First Minister Nicola Sturgeon.
Brexit has proven to be a real litmus test for American voters. Those who support Trump clearly see the parallels, which he and others have delineated between the anger in the U.K., which led to the Brexit referendum victory, and the anger in the U.S., which has led to the rise of Trump as the Republican presidential nominee and to the rise of Bernie Sanders as the “anti-Clinton” choice for the Democrats. Americans who cheer Brexit as a victory are more than likely Trump supporters. The Americans, who oppose Brexit, are more than likely Hillary Clinton supporters.
It is still too soon to tell if Brexit’s victory is a harbinger of a Trump victory in November. According to the Washington Post, Brexit’ s winning when it was not predicted to win doesn’t mean Trump can win here, but it also does not preclude his winning. “(Nativist) movements tend to be spurred by an increase in diversity – like an influx of refugees or illegal immigrants – yet seem to be dampened in areas, like cities, where people are already used to seeing a broad spectrum of faces.” The US which is 74 % white has a much more diverse population than the UK whose population is 87% white. Consequently, the nativist movement has less of a chance of succeeding in the US. That being said, the British polling firm YouGov has acknowledged that it inaccurately predicted the defeat of the Brexit referendum because it underestimated the voter turnout in Pro-Brexit areas.
The Brexit referendum won because those who perceived the European Union as detrimental to their livelihoods got out the vote. The same model applies in the United States. While pundits may try to make the election about racism and cultural bias, the election is really about the economy. The American people are clearly angry about the financial situation, which we find ourselves in where median income and labor participation are down. And yes, some of us are upset about the specter of a borderless society which lets into our country unvetted refugees or illegal aliens. Most of our fear is associated not with prejudice, but with well-placed concerns about terrorism. However, many of our concerns with the borderless society concept have more to do with the economy than social and cultural questions. Illegal immigrants and refugees take jobs away from U.S. citizens and legal immigrants. And their presence in our country depresses wages and increases our social welfare expenses.
The question is which presidential candidate is going to get us out of the doldrums? Interestingly enough, Brexit has thrown a new monkey wrench into the situation. While we may from an ideological perspective applaud or denounce Brexit based on our political persuasion, the reality is that our pocket books may suffer for a few months because of the ramifications of Brexit on the U.S. financial markets. And when we get ready to cast our vote in November, most of us will vote based on those pocket books. Those who believe Donald Trump will improve the economy will vote for him. Those who believe Hillary Clinton will improve the economy will vote for her. However, there is a segment of people who believe that Donald Trump will improve the economy, but will not vote for him from an ideological perspective. Some of them will vote for Hillary Clinton, even if they think she is weak on the economy. And the rest of them will stay home. We need a president who will invigorate the economy, but way too many of our citizens may be pulling the lever based on ideology not on practicality. And therein lies the problem.
The views expressed in this opinion article are solely those of their author and are not necessarily either shared or endorsed by EagleRising.com