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Brexit's Effect on American Small Business Owners

Brexit's Effect on American Small Business Owners
Credit: Ailisa/Shutterstock

On June 23, 2016, the results of Britain's controversial exit referendum, better known as Brexit, were announced with 51.9 of the vote in favor to leave the European Union. Upon the reveal of the results, the UK Prime Minister David Cameron stepped down and international markets have seen a sharp decline in response to the news.

A UK exit from the EU would reverse the trend towards greater global trade and investment, and the jobs they create, and is a further serious risk to growth, the G7 said in a statement, which was released in May.

The White House also released a statement on the issue:

"The special relationship between the United States and the United Kingdom is enduring, and the United Kingdom's membership in NATO remains a vital cornerstone of U.S. foreign, security, and economic policy. So too is our relationship with the European Union, which has done so much to promote stability, stimulate economic growth, and foster the spread of democratic values and ideals across the continent and beyond. The United Kingdom and the European Union will remain indispensable partners of the United States even as they begin negotiating their ongoing relationship to ensure continued stability, security, and prosperity."

Though Brexit has an immediate effect in the UK, it will also affect American small business owners.

"What it means for small businesses is that there is likely to be some ripples across the pond," Richard Williams, director for the regulatory studies program at the Mercatus Center at George Mason University, told Business News Daily. "Right now there are 50 to 60 regulatory reform bills in Congress that are essentially stalled."

According to Williams, small businesses in America have made it very clear that regulations are hurting them. It's not just existing small businesses, he said; it is also those who want to start one. 

"I think over the next few months we will hear a lot more about how regulations hurt small businesses and perhaps put pressure on Congress to act,” Williams added. “Clearly, the regulatory reach of Brussels was just one of the factors that prompted the UK to go this way, but it was [still] significant.”

JJ Kinahan, chief market strategist at TD Ameritrade, told Business News Daily that those that rely heavily on England for sales may be adversely affected as the English consumer has less buying power. 

"This goes for companies which can have a heavy effect on tech companies that are providing infrastructure as those projects may be more expensive now for British based companies and as the Euro also weakens," Kinahan said. "This can affect the entire Euro Zone."

According to a market update by Kinahan, some analysts are saying Europe could fall back into a recession due to Brexit.

"Obviously, economic weakness in such a huge market could translate into weakness here in the U.S. as well," Kinahan wrote. "If the economy weakens, there would be less pressure on the Fed to hike rates."

The Federal Reserve is carefully monitoring developments in global financial markets, in cooperation with other central banks, following the results of the U.K. referendum on membership in the European Union, the Fed explained in a statement:

"The Federal Reserve is prepared to provide dollar liquidity through its existing swap lines with central banks, as necessary, to address pressures in global funding markets, which could have adverse implications for the U.S. economy."

In light of these potential impacts, any U.S. small business that has customers or business partners overseas should be keeping a close eye on not just the European market conditions, but also pending U.S./EU trade agreements like the Transatlantic Trade Investment Partnership (TTIP). 

Shannon Gausepohl
Shannon Gausepohl

Shannon Gausepohl graduated from Rowan University in 2012 with a degree in journalism. She has worked at a newspaper and in the public relations field, and is currently a staff writer at Business News Daily. Shannon is a zealous bookworm, has her blue belt in Brazilian jiu jitsu, and loves her Blue Heeler mix, Tucker.