On Thursday, citizens of the United Kingdom will go to the polls to vote on whether their country will remain a member of the European Union. While the outcome will have the greatest impact on residents of Europe, it will also affect the U.S. as well.
And with the polls putting the “leave” campaign ahead of those for remaining in the EU, it’s essential that Americans understand just what’s at stake if a “Brexit” were to occur — and why we’re having this debate in the first place.
As a scholar of international business who views European integration as a successful, albeit messy, experiment in peace-building, I appreciate the frustration many in the U.K. have with the way the EU sometimes operates. But is that enough to justify leaving it?
A love-hate relationship
So how did the UK get to this point? The UK’s ambivalence about the EU goes all the way back to the European project’s early origins just after World War II, and something of a love-hate relationship that has persisted ever since.
When six European countries led by France and Germany first began constructing institutions to forge interdependent economic and political ties in the 1950s — and put an end to the bloody wars of the past — the UK was reluctant to participate. It viewed its future as more tied to former colonies in Africa, Asia, North America and Oceania and preferred establishing a simple free trade area in Europe rather than an institution that required ceding real political power.
It didn’t take long, however, for its government to realize that the UK’s future wasn’t with its former colonies or as an equal partner with the U.S. but with its continental neighbors in Europe. It first applied for membership in the European Economic Community, the predecessor of the EU, in 1963. By this point, however, then-French President Charles de Gaulle decided Britain was incompatible with the EU because of its earlier opposition and close relations with the US. He blocked the UK’s nascent efforts to join the six-member club, later known as the European Communities and, since 1993, the EU.
The UK was rejected a second time in 1967. But with de Gaulle’s departure from the presidency, France finally acquiesced to U.K. membership – along with that of Denmark and Ireland — in 1973. The timing was not ideal, occurring after the postwar economic boom that nurtured European integration ended and just as recession and inflation began.
Two years later, opposition to the UK’s membership in the EEC by some Labour Party members led to the U.K.’s first-ever nationwide referendum. Two-thirds of U.K. voters backed staying in the EEC, curbing anti-Europe tensions for a time.
The warming ties didn’t last long as by the 1980s UK Prime Minister Margaret Thatcher was already lecturing her EU peers (11 at that point) on how their countries’ economies should be more like the UK’s. Specifically, she thought they should reduce regulation, weaken worker rights, privatize more state-controled companies and give market forces a freer reign.
Needless to say, this approach did not go over well with her European counterparts, even though much of what she prescribed was implemented in EU and national policies in subsequent years.
During the 1990s, when EU members began to develop plans for a common currency, the UK once again played the recalcitrant partner (along with Denmark) by refusing to cede policymaking, financial clout and symbolism to supranational entities within Europe.
The disagreements don’t stop there, ranging from the war in Iraq to contributions to the EU budget and Europe’s orientation toward an “ever closer union.” It is evident that, to paraphrase a “Sesame Street” song, one of these EU member states is not like the others.
Breaking up is hard to do
So why after more than 40 years together do some Brits want to get a divorce?
A vocal minority of UK citizens, business and government officials have long grumbled about EU rules and regulations. But the 2008 financial crisis, subsequent economic turmoil, rise of immigration and terrorism and general European malaise accelerated concerns about the relative merits of EU membership, particularly on the political right.
As in most advanced industrialized democracies, far-right political parties are rapidly becoming powerful political forces by capitalizing on concerns about all these issues. In the UK’s case, growing support for the Independence Party and Euro-skeptics in his own party convinced Conservative Prime Minister David Cameron to offer a referendum on whether to stay or leave the EU.
Cameron himself says he favors staying in Europe and in February negotiated marginally better membership terms with his EU partners. His hope was that this would increase support for the EU in the June 23 referendum, even though the Conservative Party is divided on the issue.
Impact across the Atlantic
So why should Americans care about this family feud? The main reasons are tourism and trade.
On the first one, regardless of the outcome of the referendum, American tourists will still be able to visit Big Ben and Buckingham Palace, eat fish and chips, take in a show in the West End and finish the evening with a pint at a corner pub.
And in fact, if voters choose Brexit, it may become a bargain to enjoy a holiday in London, because economists expect the pound to plunge in value if the U.K. leaves the EU – perhaps as much as 15 percent or more.
The far bigger problem will be a “leave” vote’s implications for trade and investment, particularly companies and their workers within the U.S. tariffs, product standards and trade rules are negotiated by the EU on behalf of all of its members, including the UK. And in fact, the US is currently hammering out a trade deal with all of Europe, a pact known as the Transatlantic Trade and Investment Partnership.
A vote to leave the EU would mean that the US and UK would need to negotiate a separate trade agreement. And, during a visit to London in April, President Barack Obama noted that it would not be easy:
… the U.K. is going to be in the back of the queue – not because we don’t have a special relationship, but because, given the heavy lift on any trade agreement, us having access to a big market with a lot of countries – rather than trying to do piecemeal trade agreements is hugely inefficient.
In the meantime, trade between the two countries would be disrupted, adversely affecting U.S. workers dependent on exports to the UK.
One of the advantages of EU membership is that companies located in one country can export to, and import from, any of the other 27 countries without paying tariffs. That saves companies a tremendous amount of money and makes their goods and services available to a wider array of consumers.
And the benefits don’t just accrue to European companies but to foreign businesses as well. US companies had $2.78 trillion invested in Europe as of 2014 — 57 percent of the $4.92 trillion total — of which $588 billion was in the U.K. In other words, 12 cents of every dollar that US companies allocated in recent years to make overseas acquisitions or build factories was spent in the UK (about nine times as much as invested in mainland China).
Much of this investment is intended to produce goods and services for the entire European market — not just the UK. So if Brexit occurs, many US companies — particularly those in manufacturing, technology and finance — that invested in the UK as a door to Europe will have to choose whether or not to leave their UK investments behind and seek new ones in other EU member states.
There also are political implications of a vote to leave the EU. The UK has been America’s closest European ally for over a century. Washington depends on London to help make the US case on global finance, economic, political and security matters to other Europeans. So losing that voice at the EU table would make the UK a less valuable ally and could hurt US policymaking. It may eventually lead to closer US ties with Berlin or even Paris.
A cost worth bearing?
British advocates of Brexit argue that issues of sovereignty and self-government should override economic ones. This is a similar argument that many in Scotland made in 2014 in their own failed effort at independence – arguments that UK pro-Brexit politicians like Boris Johnson rejected at the time.
Maintaining complete sovereignty also is unrealistic, since it often is in a country’s interest to participate in international trade agreements, treaties and organizations, depending on the relative costs and benefits. So clearly, this all comes down to whether life is better or worse separate from the EU.
But to assume that life will be better by withdrawing from the bloc ignores the fact that the UK’s business environment will undoubtedly be adversely affected when the US, Europe and other countries recalibrate their trade, investment and political policies with a suddenly much weaker British ally.
While some might argue that is a cost worth bearing, it is difficult to foresee any tangible benefits — economic, political or security — that would outweigh it.