On June 23, 2016, the United Kingdom voted to leave the European Union. The actual date of the Brexit, meaning the cessation of membership in the European Union, is unlikely to be before 2018 because the United Kingdom must give two years' notice of its intention before the exit can be accomplished. Although an earlier exit could be negotiated, it is unlikely, as the notice period is required in order to forge future trading relationships with the European Union and other affected trading partners, including the United States.Some of the consequences of the vote that may or may not come to pass include, the possibility that Scotland will leave the UK in order to stay in the EU and a domino effect on other European states that think their economies would benefit from leaving the European Union. The most likely candidates are Greece and Cyprus, though nationalist-separatist movements in Italy and France have also said they would propose "Leave" referenda.Now is the time for U.S. citizens to ask, what does the Brexit mean for us?ImpactCompanies in the U.S. across a wide variety of sectors have made large investments in the United Kingdom over many years. American corporations have derived 9% of global foreign affiliate profit from the United Kingdom since 2000. In 2014 alone, U.S. companies invested an aggregate total of $588 billion into Britain. Output of U.S. affiliates in the United Kingdom was $153 billion in 2013. The United Kingdom plays a vital role in corporate America's global infrastructure from assets under management, international sales and research and development (R&D) advancements. American companies have viewed Britain as a gateway that provides exposure to the broader European Union. The Brexit will jeopardize the affiliate earnings of many companies strategically aligned with the United Kingdom, which may see them reconsider their operations with British and European Union members.American companies and Investors that have exposure to European banks and credit markets may be affected by credit risk. European banks may have to replace $123 billion in securities depending on how the exit unfolds. Furthermore, U.K. debt may not be included in European banks' emergency cash reserves, creating liquidity problems. European asset-backed securities have been in decline since 2007. This decline is likely to intensify now that Britain has chosen to leave.The British pound experienced weakness against the U.S. dollar in 2016, ahead of the Brexit. The day after the vote, the pound dropped to historic 30-year lows against the dollar. Moreover, weakness in the pound could be contagious and affect the euro as well. A weaker British pound and euro will likely hurt the bottom line of U.S. export companies doing business with customers in the United Kingdom and European Union, as the cost for American products and services would increase, tempering demand.
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