GROWMARK ECONOMIST: What implications does Brexit have for U.S. agriculture?

By Kel Kelly, GROWMARK's economic and market research manager

The world was shocked and surprised some days ago when British citizens voted for Great Britain to leave the European Union-the so-called "Brexit". Politicians, financial markets and the media have been awash in fear of the implications: that Britain's walking away from the economic arrangement where all countries have agreed to zero trade barriers between member countries would result in lower economic growth for Britain, and by extension the world.

But all the fear-mongering is unjustified. A country's leaving an economic union does not in itself mean its citizens will produce or receive fewer economic goods and services (i.e., have less economic growth). The U.K. and E.U. could each still voluntarily choose to not make imported goods more expensive by taxing them. Brexit is a political challenge, not an economic one.

Switzerland, a "loner" European country outside of the E.U., has greater economic growth than E.U. countries, yet still trades freely with them. There is no reason Britain could not do the same. In reality, many other economic factors have a larger impact on how well a country performs economically than do trade tariffs-such as tax, fiscal, monetary, regulatory, legal and domestic trade policies.

At worst, a Brexit resulting in higher trade tariffs on goods traded with E.U. countries would mean costlier and fewer imported goods for the U.K., causing slightly reduced economic growth, but not an outright handicap resulting in a contracting economy. At best, Britain could return to the very high economic growth it had before joining the E.U. by embracing economic freedom to a greater degree than the E.U. has permitted.

If Brexit has no inherently bad economic implications for the U.K., it certainly has none for the U.S.-especially not for U.S. agriculture. Less than 5% of our total agricultural trade consists of trade with the E.U., and much less than 1% consists of trade with the U.K. Even if it were 90%, it would not matter, because any possible trade tariff changes between Britain and the E.U. do not affect tariffs between those countries and the U.S.

The biggest negative that agricultural economists have been able to come up with for the U.S. is a stronger dollar making our exports more expensive-given that the U.K. pound has fallen in value as a result of Brexit. But besides the fact that exports do not drive commodity prices or farm incomes, a higher dollar/pound value would not matter for the U.S. since the U.K. imports a negligible amount of our agricultural products.

And the dollar's value is not measured against only the pound, but also against more than 200 other currencies. Its current value against its major trading partners (as a group) is no different from what it was before Brexit. Additionally, it is relative money supplies and prices between countries that dictate currency values over time, not tariffs and economic unions.

So while Brexit is making waves for its shock value, the reality is that it should have little effect on overall economic matters, especially American agriculture.