U.S. policymakers, companies see a Brexit hurting investment, profits

Wed Jun 22, 2016 1:31pm EDT
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By David Lawder and Howard Schneider

WASHINGTON (Reuters) - A vote by Britons to leave the European Union on Thursday may not drag the United States into recession, but its effects on U.S. monetary policy, trade and corporate profits are causing concern in Washington D.C. and boardrooms alike.

Market volatility in the immediate aftermath of such an unprecedented decision would likely drive down the British pound and push the U.S. dollar up, keeping Federal Reserve interest rate rises on hold for even longer as the damage is assessed and divorce terms are negotiated with the EU.

Federal Reserve Chair Janet Yellen on Tuesday repeated the U.S. central bank's concerns over the "Brexit" vote, telling lawmakers it could have "significant economic repercussions", including a flight to the safety of dollar assets that would push up the dollar and further slow U.S. exports.

Britain, the world's fifth largest economy, is the seventh largest U.S. trading partner, with $56 billion in U.S. goods exports to Britain and $58 billion in imports from the UK in 2015.

Aircraft and aircraft engines are the biggest U.S. exports to Britain, while cars and trucks are the largest U.S. imports from the UK, with two-way pharmaceuticals trade important for both countries.

More than half of Britain's exports go to Europe though, where a vote to leave the EU could put it at a disadvantage.

Leaving the EU would cost Britain its privileged free trading status with the continent, throwing up problems for multinational companies with British operations, including higher tariffs on UK-produced cars and engines as well as uncertainty over how banks and insurers in the London financial hub can operate in Europe.

The United Kingdom also would be excluded from EU free trade agreements with other countries, such as those with Canada, Mexico and South Korea. The EU currently has Preferential Trade Agreements with 52 countries and is negotiating agreements with another 72.   Continued...

Participants hold a British Union flag and an EU flag during a pro-EU referendum event at Parliament Square in London, Britain June 19, 2016. REUTERS/Neil Hall/File Photo