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Will Brexit Impact Michigan Business? Detroit Panel Says ‘Not So Fast’

For the first time since the United Kingdom voted to exit the European Union this past summer, experts with the Federal Reserve Bank of Chicago’s economic research department tackled key questions from the Southeast Michigan business community on the impact of Brexit in the United States during a panel discussion hosted by the Detroit Association for Business Economics’ (DABE) in September. Senior Vice President David Marshall and Vice President Hesna Gena cautioned from an economist’s standpoint, businesses should not be quick to panic. Read highlights from the discussion.

Brexit Broken Down:

  • In order to exit the Union, the United Kingdom needs to invoke Article 50 of the Lisbon Treaty. It will take two years to agree on the terms of the split. However, the United Kingdom won’t invoke Article 50 until 2017 when an outline of the agreement is in place.
  • Once invoked, the clock starts ticking and can’t be stopped unless unanimously voted on. This process could take at least eight to nine years.
  • What happens in the United Kingdom and the rest of the world depends on a final trade agreement, which has various options ranging from little change (least economically harmful) to many changes (most economically harmful).
  • Until a decision is reached on a trade agreement, there won’t be much impact on the economy in the short-term.
  • Much of the impact is likely to happen in the long-term – 10 to 15 years from now.
  • The biggest impact will happen between the United Kingdom and the European Union, due to their closely tied regions and economies.
  • For the United States, the direct impact of Brexit will be low. This is due to the United States’ relatively closed economy with very little trading with the European Union. Thus, the direct trade linkages are not big enough to have an impact on the United States.
  • Changes to the potential trade agreement will determine how it impacts the rest of the world. Thus, the bigger the change, the bigger the impact.