An Urban's Rural View

Markets' initial reaction to the Britons' vote to leave the European Union confirmed an old axiom: When confronted with the unexpected, investors instinctively fear the worst. They sell first -- even seemingly unrelated markets like Chicago corn and cattle -- and ask questions later. Now the question haunting investors is whether to expect a 2008-style financial meltdown or merely continued market turbulence.

Political and economic pundits are asking some big questions of their own. What does Brexit mean for the future of Europe? The solidarity of the NATO alliance? The health of the Chinese economy? Could some of the same forces that drove British voters affect the outcome of the U.S. presidential election? Could Scotland and Northern Ireland secede from the United Kingdom? The list of questions goes on and on.

Farmers and ranchers have a lot riding on the answers to some of these questions. Will nervous investors keep piling into "safe" assets like the dollar and the yen? That could undermine U.S. ag exports. Will Brexit tip the world economy into recession? That could cut into demand for more protein in developing country diets.

With Britain out of the EU, will any European government defend biotechnology? With the British market no longer part of the equation, will the negotiations over a U.S.-EU trade agreement derail? What new tariff and non-tariff rules will govern our agriculture trade with an independent Britain?

The biggest question, not just for American farmers but for everyone, everywhere, is whether Brexit marks a turning point in history, the end of the Age of Globalization, a return to a world in which both goods and people cross borders less freely and frequently.

Those who believe it is see the Brexit vote as a revolt against the establishment by Britons left behind by globalization. These observers predict a wave of uprisings at the polls by left-behinds in other countries.

There's clearly something to this view. It was the left-behinds -- voters without college degrees -- who went heavily for Brexit, and there are left-behinds elsewhere. Yet the danger of this cancer metastasizing may be overstated.

Britain is different. It is an island nation that has always been ambivalent at best about its links to the continent, which in a much-quoted quip was said to be "isolated" from Britain whenever there was fog over the English Channel. Although Britain joined the EU, it never adopted the Euro as its currency, demanded and won several opt-outs from EU rules and remained out of the EU's Schengen travel system.

Politically the British were often at odds with the statism of many other EU members. If anyone was going to "take back" their country from the Brussels bureaucrats, it was going to be the British.

Long before Brexit, the growth of globalization was slowing. Finding the votes in Congress to pass trade agreements hasn't been easy for decades and in recent years it's bordered on impossible. Neither presidential candidate supports them.

If Donald Trump is elected and goes forward with his proposed 45% tariffs on Chinese goods, the ensuing trade war could easily return the world to protectionism. If Brexit causes a chain reaction and other European countries following Britain's lead, that could return the world to protectionism. But by itself, the withdrawal of one country, particularly this country, from the EU is unlikely to have that kind of cataclysmic, change-the-course-of-history effect.

That isn't to say it won't have other serious effects -- for Britain itself, for Europe, for the world economy, for the dollar, for the Euro, for trade, yes, maybe even for American agriculture. No wonder Brexit has left the markets with that queasy, uneasy feeling. All the markets have, all any of us have at this point, is questions.

(CZ)

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