On June 24 of this year, chaos broke out overseas when it was announced that, despite the expectation that the United Kingdom (UK) would vote to stay in the European Union (EU), 52 percent of citizens voted to leave. It was an inescapable story with media from the U.S. and overseas all speculating how this would affect the citizens of the UK.
For those who do not already know, the EU is an economic and political partnership involving 28 European countries that began after WWII to foster economic cooperation. The idea behind the EU was that countries involved in trade together would be less likely to go to war with each other. It has since grown into a single market, allowing goods and people to move freely between member countries as if they were states within one country. The EU has its own currency, the euro, which 19 member countries use, as well as its own parliament and a set of rules covering a wide range of areas including the environment, transport and consumer rights. For the UK to officially leave the EU, they must first trigger Article 50 of the Treaty of Lisbon, a move that current Prime Minister Theresa May says she will not make until 2017. Once Article 50 is triggered, the two-year process of the UK’s divorce from the EU will begin.
In the wake of the announcement that the UK would be going through with their ‘Brexit,’ the value of the pound plummeted and Prime Minister David Cameron, who called for the referendum after securing a much criticized deal on Britain’s membership of the EU, announced that he would be resigning as Prime Minister. The feeling of uncertainty about the future was not just limited to citizens of the UK; members of the agriculture industry here in the U.S. continue to wonder how this will affect agricultural equipments trade moving forward.
While some are already planning a shopping trip to London to celebrate the first time in years that the U.S. dollar has been strong against the British pound, those in the agriculture industry are not quite in the mood to celebrate. It is a widely held belief in the agriculture industry that a weak dollar is good for business. With the sudden strength of the U.S. dollar in comparison to the British pound, U.S. exports could be more expensive for the UK, causing them to look to other countries for a better deal on imports.
As scary as that may sound for people who depend on exports to make a living, it is not time to sound the alarm quite yet. The main fear is that the UK’s departure from the EU will inspire other member countries to do the same, which could cause problems for not just U.S. trade but global trade down the line. However, as of now, no other countries have announced plans to make an exit from the EU.
The UK itself isn’t a significant export market for U.S. producers. In 2015, the U.S. exported $8.3 billion in corn globally, but only $62,000 of the crop was purchased by the UK. Of the $18.9 billion worth of soybeans exported from the U.S. worldwide, $76 million worth went to the UK. Overall, the U.S. exported $133 billion worth of agricultural exports, but the UK only accounted for $1.8 billion of the sales. Needless to say, a slight rise or fall in the amount of good exported to the UK would not have a significant impact on us.
While trade with the UK has been mediocre and only a small part of the global market for U.S. agriculture exports, their exit from the EU may actually be a great opportunity for the U.S. agriculture industry. Currently, the U.S. loses out on potentially billions of dollars in exports because of the strict food processing rules put forward by the EU. Those rules limit the amount of beef, pork and poultry that the U.S. can export and come down hard on GMOs, banning them from entering the country.
“Here’s a chance to change that with a major European country,” David Salmonsen of the American Farm Bureau said. “I think that’s a heck of an opportunity for us to look at, I think people in agriculture all around the country should see that.”
Optimists note that the UK’s exit from the EU means that the UK will now be tasked with creating new trade agreements rather than following the rules put forth by the EU. This spells huge potential for the U.S. and the chance to make the UK a bigger part of U.S. exports. While there are still numerous unknown factors that will unfold as we get closer and closer to the triggering of Article 50, there’s one thing we know for sure – the UK is going to have to strike a new trade deal with the U.S. Whether that deal will be more favorable toward U.S. agriculture or not remains to be seen, but for now the best advice that experts can give U.S. farmers is simple: Keep Calm and Carry On.