Come June, if Britain decides to leave the European Union, it will be a sign that the U.S. has lost its influence on its most important global partner.
Winston Churchill was the first to say in the 1940s that the U.S. and U.K. had a “special relationship”, which at the time was meant to describe the two countries’ close political, cultural, economic and military relations. However, through the years and especially under the Obama Administration, the relationship has been strained and a decision by the U.K. to leave the EU next month, will all but destroy the terms of cooperation.
Last month, President Obama traveled to London and delivered a speech aimed at exerting the U.S.’ influence on the U.K. He warned that if Britons vote to leave the EU they would relegated to “the back of the queue” for a U.S. trade deal.
The ease of negotiating new trade deals had been one of the main arguments used by the leave campaign, but Obama made it clear that “It’s fair to say that maybe some point down the line, there might be a UK-US trade agreement.
But that’s not going to happen anytime soon because our focus is negotiating with a big bloc, the European Union, to get a trade agreement done; and the UK 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 efficient.”
Leaving the European Union is an isolationist move that makes Britain a less relevant and significant economy according to former U.S. Treasury Secretary Larry Summers.
There is no question that it is in the U.S.’ interest for the U.K. to remain in the EU because the U.S. government wants a strong, stable and integrated Europe. The U.K. is the EU’s second largest economy and its foolish to expect a smooth exit, especially at the onset because new deals won’t be negotiated until they vote to leave.
There will be a deep period of uncertainty as politician’s rush to come up with a plan for the future and that uncertainty will wreak havoc for markets around the world…including the U.S. However, the U.S.’ concerns extend beyond a short term impact on the markets.
London’s role as a global financial center will be threatened and the U.S.-U.K. special relationship would have less significance as new relationships will need to be built with a Britain free EU.
As traders, we know that Brexit will cause significant disruption for the financial markets and drive investors into the safety of U.S. dollars but there are broader, long lasting ramifications. Beijing views this as a sign of U.S. losing power and while the media won’t be focusing on this initially, it’s will mark a significant shift in U.S. – European relations.
Until next time,
Ms. Kathy Lien is the Managing Director and Founding Partner of BKForex’s strategies and creator of the new course The ULTIMATE Forex Trading Course produced in conjunction with Weiss Educational Services.Kathy, a leading currency and Forex expert, started the #1 Forex news site DailyFX.com, is a regular contributor to CNBC Squawk Box and is a former host of CNBC’s Forex show, Money in Motion. She is also an internationally-published author of the best-selling book, “Day Trading and Swing Trading the Currency Market” (now in its third edition) and “The Little Book of Currency Trading.”