There is no way to portray the reaction to last Thursday's Brexit vote as anything but an economic avalanche. The British pound is trading against the dollar at a rate not seen since Wham! was still together. An estimated $2 trillion disappeared from the world's capital markets in a single day, the worst one-day drubbing since records have been kept. And it seems entirely possible that this week, markets will continue to tumble.
In an atmosphere of uncertainty tinged with panic, reliable predictions are scarce. Nonetheless, based on what's known, there is a reasonable case that Friday's reaction to the Brexit vote was exaggerated and that, if you run or work for an American business, the impact will be less than cataclysmic. Here are a few reasons to keep your head.
There is a chance the actual Brexit won't happen.
Admittedly, it appears to be a small chance. However: the referendum vote on Thursday is not legally binding, and as of Monday morning, the formal mechanism for Britain's departure - a notification to the EU under article 50 of the Lisbon Treaty - has not taken place. And, while many expected Prime Minister David Cameron to invoke the article immediately after the Leave vote prevailed, he said in his resignation speech on Friday that he would leave the task to his successor, who won't take office until October. (The fact that Cameron has yet to invoke Article 50 has led some to speculate that he is trying to box in his successor.) EU leaders have grumbled that they would like the Brexit to happen earlier, but they realize they have no authority to begin the departure process on their own.
By the time Britain has a new prime minister, it is conceivable that some pro-Brexit leaders could change their minds, or that some method of blocking the procedures will emerge. After all, a strong majority of Members of Parliament still support remaining in the EU, and could find ways to derail the process. Scottish leaders have already said they will not consent to any agreement that takes Scotland out of the EU. That probably isn't binding, either, but such foot-dragging might end up triggering a second referendum.
Assuming Brexit does happen, it won't happen soon.
E.U. rules allow for negotiations with the departing nation to take up to two years. Given the volume, complexity and sheer novelty of what needs to be hammered out between the U.K. and Europe--some 80,000 pages of European rules need to be hashed through--the Brexit is unlikely to be realized until 2018 at the earliest. Moreover, there is a provision to extend negotiations if both sides agree, and if there is one thing British and European bureaucrats excel at, it's delay through paperwork.
The U.S. economy doesn't depend that much on Britain.
For all the historic and strategic ties between the two nations, Britain is not a major trading partner for the United States. Trade between the two countries amounts to about $9 billion a month, split roughly evenly between exports and imports. That makes it only the seventh-largest U.S. trading partner. To give some perspective, the volume of Canadian trade is about five times higher. The U.K. accounts for just 4 percent of U.S. exports, equal to about 0.5 percent of U.S. GDP. And, of course, trade with Britain may slow, but the Brexit won't cause it to disappear.
Some of the economic fallout may be beneficial to the U.S.
Maybe it won't be enough to recover the hit your retirement or college savings account took on Friday, but it needn't be all gloom. As Inc.com columnist Minda Zetlin pointed out on Friday, the Brexit referendum adds uncertainty to a global economy already showing weakness (in China and Brazil, for example). A flight to U.S. bonds and more foreign direct investment would be at least modest plusses for the U.S. economy.
There are, of course, scenarios in which Brexit's impact on American businesses is much, much greater. These largely fall into two contagion camps, economic and political. A few more global market days like Friday could trigger recession in much of the world, and American business would suffer in the slowdown. But while the British pound continued to slide on Monday, and many European stock markets opened down, Japan's Nikkei index recovered some of Friday's losses.
The second contagion is the idea that the Brexit will spur on populist, anti-globalization and anti-immigrant movements elsewhere in Europe as well as in the U.S., including the election of Donald Trump as president.
If that all happens, feel entirely free to freak out.