Safe-Haven Flows May Benefit U.S. as Brexit Roils Global Markets

As markets reel from the U.K.’s surprise decision to leave the European Union, the U.S. may be one of the relatively safer ports in the global storm.

The world’s biggest economy may be poised to attract a bit of the growth that would have otherwise taken place in the U.K., according to some economists. Companies looking for havens may seek shelter by buying assets in the U.S., where the uncertainty seems comparatively milder.

“It’s unfortunate for the British -- I think they hurt themselves economically -- but those are choices people make,” said Simon Johnson, a British-American economist at the Massachusetts Institute of Technology’s Sloan School of Management in Cambridge. “There are plenty of other places in the world who want to take advantage of that.”

While the economic consequences of life after Brexit will take months, even years, to be fully realized, the uncertainty that has already roiled markets will probably impede business investment worldwide. The pound plunged to the lowest since 1985, global stocks tumbled and bonds and gold rallied after U.K. voters decided by a 52 percent majority in a Thursday referendum to separate from the EU.

The Federal Reserve on Friday pledged to take action to help calm financial markets, saying in a statement it was “prepared to provide dollar liquidity through its existing swap lines with central banks, as necessary, to address pressures in global funding markets.”

Safer Haven

In such an environment, the U.S. will benefit from a flight to safety, according to Alan Blinder, a Princeton University economist and a former Fed vice chairman. That helps counter some of Brexit’s negative consequences.

“Other than the obvious fact that a weaker world economy -- which we will get -- has some negative effect on the United States, I don’t think this is a very big deal,” he said. “The main reason is that there is going to be, both in the near term and intermediate term, considerable capital flight into the United States.”

Especially as politicians in other EU-member countries mull following the U.K.’s lead, direct investment in the U.S. will become more attractive than in Europe, Blinder said. 

American Competitiveness

“Those will be important offsets to the rise, which again has already begun, in the U.S. dollar” that crimps American exporters’ competitiveness, said Blinder. Economists have estimated such forces could shave anywhere from about 0.25 percentage point to 0.6 percentage point from growth this year and next.

The U.S. may also get a boost in the global political arena, according to MIT’s Johnson.

“Europe needs us more, the British need us a lot more,” he said. “I really hope we can come out of this together and be helpful to them, but this is good for America, not bad.”

Before it's here, it's on the Bloomberg Terminal.