By Joseph J. Schatz and Ben White
British voters didn’t just shock the world and the financial markets by voting to leave the European Union hours ago: They also ignored President Barack Obama, handed Hillary Clinton a potential economic burden and injected new energy into the populist currents roiling politics on both sides of the Atlantic.
The surprise 52 percent - 48 percent result in favor of leaving the European Union — which British networks projected just before 5 a.m. local time — came after a tense night of vote-counting throughout the United Kingdom. British Prime Minister David Cameron later announced he's resigning, citing a need for "fresh leadership." The British pound rose and fell rapidly as the anti-EU “Leave” movement piled up big margins in the northeast, swamping wins by the “Remain” camp in London, Birmingham and Scotland.
In addition to driving down the pound by nearly 10 percent, the vote slammed global markets, with shares in Asia down well over 3 percent in early trading. Futures markets also indicated a big swoon coming on Wall Street early Friday morning with shares expected to drop more than 3 percent. That would amount to a Dow drop of close to 600 points, a plunge frighteningly reminiscent of the 2008 financial crisis.
Market analysts struggled overnight to reckon with the potential global impact of the Brexit vote. "Massive institutional uncertainty is now being superimposed on economic fragility and financial fluidity," said Mohamed A. El-Erian, chief economic adviser at Allianz.
Central bankers and heads of state around the world sought to calm the financial markets and limit the damage from the vote on Friday morning.
But make no mistake: A Brexit represents nothing less than the partial splintering of the world’s largest political union and trading bloc — an $18 trillion economy. Many fear that other European countries will now hold their own exit referendums, leading to a chain reaction that will reverberate across the Atlantic. The Brexit vote could also break apart the UK, scramble transatlantic political unity amid growing tensions with Russia, and complicate U.S. trade ties.
It will almost certainly hit the U.S. economy, warned Harvard professor and former Treasury Secretary Lawrence Summers.
"The economy is more fragile to a negative shock than at anytime since the second World War," Summers told POLITICO. "Always before when had a downturn there was room for monetary policy action to counteract that. Today there is essentially no such room."
In addition to volatility hitting U.S. markets, the surprise win for the Leave side is likely to ripple through the 2016 presidential campaign. The Brexit vote became largely a referendum on elites and immigration, the same themes likely Republican nominee Donald Trump has put at the center of his bid for the White House.
Trump, who spoke favorably of Brexit, applauded the U.K.'s decision to leave the EU Friday.
“They’re angry over borders. They’re angry over people coming into the country and taking over, and nobody even knows who they are,” Trump told reporters after his helicopter landed in Turnberry, Scotland. “They’re angry about many, many things.”
He also took the opportunity to take shots at Hillary Clinton, who along with President Obama had cautioned British voters against leaving the EU.
"Well, she’s always misread everything. She’s misread this, and I was surprised that she was so bold," Trump said of his likely Democratic opponent. "The only reason she did it is because Obama wanted it. You know, if Obama wanted it the other way — if he said 'leave,' she would have said 'leave.' She does whatever he wants her to do."
He added: "They're always wrong, and that's the problem with them."
The result could also suggest that polls showing a lead for Clinton are underestimating the extent to which voters across Western democracies are fed up with career politicians and concerned about Islamic terrorism and immigration. UK polls and online betting markets heading into the Brexit vote appeared to show a small but solid leave for Remain, similar to the leads Clinton holds in most U.S. surveys.
"Polls consistently underestimating right-wing support," Weekly Standard editor BIll Kristol tweeted. "Cameron & Bibi, now Brexit. So if polls show Clinton up 5, could Trump be even?"
The larger issue for the Clinton campaign will be potential economic fallout from the UK's decision to leave the EU. Indeed, if the apocalytpic economic predictions leading up to Thursday’s vote turn out to be accurate, get ready for a Brexit-fueled economic slowdown that could bleed into the presidential race.
The U.S. economy grew just 0.8 percent in the first three months of 2016, and even President Obama acknowledges frustration with the pace of recovery, even as he embarks on a legacy-polishing campaign to change the narrative around his economic stewardship.
Clinton — who has at times distanced herself from her former boss’s economic record — is counting on the economy improving the rest of the year to help her hold the White House for Democrats for another term. And the U.S. Federal Reserve is largely out of ammunition to try and fight a fresh downturn.
A new recession, if it happens, could hand Trump a political gift — allowing him to bash Obama and by extension Clinton for driving the U.S. economy into a ditch. Never mind that Obama lobbied against a Brexit, and Trump cheered it on.
But bad economic news could just as easily expose Trump’s lack of fluency with financial markets, reinforcing Clinton’s recent attacks on him as unfit to have his finger on America’s economic button.
The success of the “Leave” campaign represents a major failure for Cameron, who first called the referendum to satisfy anti-EU forces within his party and then tried unsuccessfully to persuade voters to stay in the EU.
“The will of the British people is an instruction that must be delivered,” Cameron said while announcing his resignation, his voice cracking with emotion. “It was not a decision that was taken lightly, not least because so many things were said by so many different organizations about the significance of this decision. So there can be no doubt about the result.”
The vote will now trigger a two-year disentangling process where London and Brussels will negotiate the terms of a messy divorce. For U.S. companies that use the UK as a launching pad into Europe, the coming months will bring hard choices about whether to stay or go. While the U.K. will negotiate some sort of new trading arrangement with the European Union, the “Leave” vote almost certainly means that British access to the European single market will be severed — a huge problem for U.S. companies in England that serve the European market.
With the United Kingdom on the way out of the European Union, negotiations over a giant U.S.-EU trade accord known as the Transatlantic Trade and Investment Partnership (TTIP) — already foundering — may be dead.
How Britain will leave the EU
Regardless, Obama, and his successor, will face a difficult choice: Do they carry through on Obama’s warning in April that a Brexit would put the United Kingdom “at the back of the queue” for a new U.S. trade deal? Or do they cut a deal with the United Kingdom, as some Republicans have suggested in recent days?
Obama traveled to London in April at Cameron’s request to urge the Brits to vote “Remain” and argued that Britain is more influential inside the EU, and a more valuable partner for the United States. Now, administration officials and congressional leaders will be forced to reconsider, again, whether the U.S.-UK special relationship is as important as it once was.
Indeed, while U.K. “Leave” leaders like Nigel Farage were proclaiming Britain’s “Independence day” by early Friday, Richard Haas, president of the Council on Foreign Relations, tweeted: “If #Brexit happens, June 23 will not be remembered as Britain's Independence Day but as the beginning of the end of the U.K.”
Moreover, Britain’s decision to leave weakens Europe as a whole at a time when Russian President Vladimir Putin, eager to get his country out from under Western sanctions, is trying to poke holes in the European Union and weaken transatlantic unity.
Sen. Lindsey Graham (R-S.C.) said earlier this week that he can understand British concerns about over-regulation from Brussels. “But,” he told POLITICO, “I think Putin is licking his chops at the breakup of the European Union.”