It’s too early to say what impact the United Kingdom’s vote to exit the European Union will have on its trading partners such as Louisiana, says LSU finance professor Joseph Mason, who adds that the legal “bindness” of the vote still is unclear.
What is clear is the immediate ripple effects the vote, deemed by a surprise by various media outlets, has had on global financial markets today. According to various media reports, the Dow Industrial Average plunged 600 points immediately following the referendum, and the British pound has taken a beating.
“The market volatility harms everybody,” Mason tells Daily Report. “Anybody with a retirement account, any business with an exposure to exports to Europe will be impacted.”
The U.K. is of one of Louisiana’s top export markets. According to the Louisiana Economic Development, an estimated $2 billion in Louisiana exports have gone there since 2014.
Top exports include aircraft, spacecraft, organic chemicals and mineral fuels. Louisiana also is No. 1 among states in U.K. exports of fruits, grains and seeds and No. 2 in mineral fuels.
What happens with Britain’s trade treaties depends largely on how Britain proceeds, Mason tells Daily Report. It’s not clear if the British Parliament actually has to do anything with the vote.
“Before anything is to occur at all, Britain must either declare to the EU that it is leaving—in which case all treaties, etc., no longer apply to Britain—or wait for a two-year period to elapse at which time such conditions are automatically imposed,” Mason says in a statement sent earlier today. “It is unclear how the government will choose to proceed and—if the two-year track is taken—when the expected economic impacts will arise.”
For now, uncertainty reigns for the U.K., which financial markets hate, Mason explains, adding that at the heart of the “Brexit” vote is leftover social unrest from the credit crisis.
“Governments failed to enact stimulative fiscal policy over the past seven years, hoping against hope that central banks would come to the rescue,” Mason says. “Monetary economists worldwide know that monetary policy cannot stimulate real growth—they can only stimulate nominal growth via inflation, which hasn’t worked well in recent years.”
