Research Weekly - Brexit, How it Will Affect Utah
On June 23, 2016 Britain held a referendum to determine whether the country would remain a part of the European Union (EU), a collection of European counties who have entered into an economic and political union aimed at fostering cooperation between the countries for mutually beneficial outcomes. Britain joined the union in 1973 (although at the time it was called the “European Economic Community,” and was renamed the EU in the 1990s). The vote to leave the EU was affirmative by a very small margin. The term “Brexit” signifies the British Exit from the EU.
Although the actual exit from the EU will be a multi-year process, the day following the vote the Dow Jones Industrial Average experienced a 600 point drop (Friday, June 24), followed by another 300 point drop the next day (Monday, June 27). Concerns of global uncertainty and recession were immediate. Prime Minister David Cameron resigned and many were in shock that the vote actually passed. It is unclear what the lasting effects will be, but by the last day of June stocks had nearly returned to pre-vote levels.
How does this referendum impact Utah? Utah will experience the indirect effects of this vote similar to every other state, such as possible global recession, steady or lowered interest rates, and continued uncertainty; however, more importantly is the direct impact Utah may experience with our international trade with Britain. In 2015 Britain was Utah’s number 1 export trade destination.* As a result of the vote the British Pound was devalued from about $1.50 to $1.30 (its lowest level in decades). This means that American products will be much more expensive for Britain to purchase. It is unclear what the magnitude of the effect will be on Utah’s trade with Britain, but it seems likely that Britain will not be able to purchase the quantity of Utah goods they have in the past.
It is particularly relevant to note that Utah is one of the only states in America that has a trade surplus—this means we export more than we import. This is very good for Utah’s economy because when we export products we are importing money. As Utah sells product to other states or countries, the money that flows into the economy as a result of the transaction adds to the wealth in the state, fostering further prosperity in economic development, and ultimately improving the quality of life in the state.