Make no mistake… this year promises to be a seminal one for the UK and the EU.
This is particularly true now that British Prime Minister Theresa May has triggered Article 50, officially confirming the UK’s intention to officially leave the European Union and the single market. Negotiations are set to begin later this year, while the European Parliament will also be forced to actively participate in these as crucial elections take place in France, Germany, and potentially Italy.
While all eyes will be on the Brexit negotiations and the UK’s future relationship with the EU, there are other factors to consider once Britain has become a sovereign nature once again. After all, the UK’s new-found status will surely impact on its so-called “special relationship” with the U.S., which may need to be reimagined as the government tries to seek out new and lucrative trade deals.
How Will Brexit Impact the Special Relationship Between the U.S. and the UK?
From an historical perspective, both the U.S. and the UK are bound by culture, trade, and a host of shared democratic values. This is fundamental to the development of the so-called special relationship between these two nations, and it is hopeful that such foundations will help them to forge a new and exciting partnership in a post-Brexit landscape.
Unfortunately, the initial portents are not as positive as history might suggest. Last April, then-President Barack Obama stated that the UK would move to “the back of the queue” in terms of negotiating a new trade deal, while the POTUS also took the unusual step of declaring Brexit a mistake. While new President Donald Trump may have been an avid supporter of Brexit and has stated that he’s open to negotiating a new, progressive deal with the UK, there are huge concerns pertaining to whether or not he will be able to deliver on such a promise.
To begin with, President Trump waged a protectionist campaign, one that championed American interests ahead of globalization. It is therefore unlikely that he will make exceptions for the UK, meaning that UK officials will be hard pressed to strike a positive and progressive deal that reflects shared interests. We would also consider that Trump is a self-proclaimed deal-maker, who thrives on gaining the upper hand in negotiations and may not be able to resist leveraging the UK’s weakened position and departure from the single market to his advantage.
While this puts the UK at a disadvantage from a trade negotiation perspective, it also creates challenges in terms of aligning foreign policy measures. Brexit has fundamentally weakened the EU and the Western international structure, while forcing the UK government to adapt is foreign policy and the U.S. own efforts by association. This is likely to cause some tension and logistical difficulties within the relationship, while it may also accentuate divides that have already begun to appear since Trump has triggered a definite shift to the right in American politics.
The Last Word: What Does This Mean for Investors?
Given the depth of US-UK bilateral investment, there is no doubt that a new deal will get done, and this will lay the foundation for the relationship between these intertwined nations going forward. This will take time to achieve and quantify, however, while it may also cause some tension in terms of whether or not the UK are able to strike a progressive deal. There may also be a need for transition among investors, particularly those who deal primarily in U.S. or UK equities or the nations’ respective currencies.
Outlets such as ETX Capital have reported the sustained devaluation of the pound since the EU referendum, for example, and aside from one or two periods of growth it has continued to trade within a narrow range. This has enabled the U.S. Dollar to make significant gains against the pound and the Euro, although such growth has arguably weakened the competitiveness of American exports and certain company stocks as a result.
Such fluctuations are often detrimental to investors, who must resolve to maintain a keen eye as they monitor ongoing negotiations and strive to understand the constantly shifting economic landscape.