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What’s the impact of the British referendum on the Americas?
This morning, we awoke to the shocking news that UK voters have opted for leaving the European Union. Like many elections in today’s globalized world, the effects fall heavily on countries and people who had no say in the matter, at least electorally. The consequences will fall heaviest on Europeans in the UK (and UK residents in the EU) and on Europe generally. U.S. businesses and political leaders were clearly hoping for the UK to remain in the UK, and the pessimistic expectations are already clear in early trading on the markets.
But do the results matter for Latin America?
The immediate impact of “Brexit” on Latin America is to create additional economic uncertainty in what is already a challenging environment. Many Latin American economies have been hit hard by falling commodity prices. In the near-term, the referendum results will exacerbate that. Market turmoil will continue to drive up the US dollar, increasing borrowing costs for countries that are already in the red.
For Latin American countries that have recently negotiated or are currently negotiating free trade agreements with the EU, the eventual absence of the UK reduces the value of those deals somewhat. Trade with the EU is very important to many Latin American economies. It accounts for about 15% of Argentina’s trade, nearly 20% of Brazil’s, 18% of Colombia’s. Though the figure is lower for Mexico, 11% of the country’s exports go to the EU (all figures from the WTO). It is a very important source of investment, too. To the extent that Brexit slows Europe’s economic recovery, it will hit Latin American export sectors that are already suffering.
Trade with the UK itself, however, is much less important. It generally accounts for only a tenth of the trade figures listed above. Some Latin American states may eventually seek separate agreements with the UK, but it is not likely to be a high priority. Certainly nothing can be arranged until the terms of the UK’s exit are clearer. A more immediate concern for Latin American governments will be securing the main European sources of investment through the EU. For most countries, that means Spain, the Netherlands, and Germany. It’s a bit of a different story for small economies of the Anglophone Caribbean, but not a more positive one given the general turmoil and possible reduction in market access. The UK is not the investment powerhouse that it once was in Latin America, when the island nation was a major force in the continent’s railway, shipping, and mining sectors. Therefore, the economic effects of Brexit are likely to be serious, but indirect–filtered through the EU, commodity prices, and the value of the dollar.
Politically, the immediate response in Latin America seems to be disbelief. The continent has long idealized and struggled for greater integration (though with many disagreements about what that should mean). Brexit flies in the face of that. Here is a regional organization that, for many legitimate gripes, on the whole really works to promote economic and social wellbeing, and has a record of enhancing peace and human rights. That has long been at least a rhetorical aspiration for many in the hemisphere, and so it is surprising to see it cast aside, I think. (At least it is for me.) That said, the region is likely to be much more consumed by the positive news of the ceasefire in Colombia.
Perhaps even more important are the echoes of the Leave campaign’s tenor for Latin Americans. Given the experiences of many Latin Americans living in the United States, there is little sympathy for the anti-immigrant sentiments that fueled much of the Leave campaign. In short, I don’t see many silver linings for Latin America from a British departure. It reduces British influence in Latin America, too, but cutting it out of EU programs and by weakening the UK’s appeal and “soft power.”
In the United States, the political picture is more mixed. Certainly, most of the business and political establishment was hoping for decisive Remain, as President Obama clearly stated. The United States has a strong interest in both a more integrated UK and in a more liberal EU. Both of those are now under severe threat, and on the whole that is bad news for U.S. companies. It also complicates U.S. security relationships, though there will be an emphasis on maintaining those. In terms of public opinion, there is a sector of the U.S. electorate that has long been skeptical of international organizations and that will celebrate Brexit. The messages of the Leave campaign will have resonated with many Tea Party supporters in the United States, which shared similar emphases on stopping immigration and purging supposedly unresponsive and unaccountable politicians and bureaucrats. The reception of the results of the referendum will largely mirror the political divisions that have been so evident during the U.S. presidential campaign.