The referendum in which voters in the United Kingdom elected to leave the European Union has raised many questions related to trade. The outcome was somewhat surprising, as most odds-makers had projected the “remain” side to prevail in a down-to-the-wire vote. But in the end, UK voters favored leaving the EU by 52 percent to 48 percent. British Prime Minister David Cameron, who supported remaining in the EU, announced that he will step down in October.

Markets around the world reacted to the great uncertainty associated with the UK decision. This included a rush to safe-haven currencies like the yen and the U.S. dollar, and a dramatic drop in the British pound. The pound plunged by about 10 percent at one point to $1.33, though it later recovered to post about an 8 percent loss at $1.36. The euro, which has averaged close to $1.13 since April, has been trading at about $1.10, providing an additional tailwind for EU pork exports. The Japanese yen surged to Yen 99 against the U.S. dollar – a gain of 7 percent from Thursday and the strongest since November 2013 – while other Asian currencies declined. The yen has more recently been trading closer to 102 yen per dollar.

The European Council has begun preparing guidelines for negotiation of the UK’s departure. More details on this process are available in this European Commission fact sheet.

Most of the UK’s beef and pork imports currently originate within the EU, and it remains to be seen how the UK’s departure will impact these imports. Trade between the UK and EU, including decisions on tariffs, sanitary and phytosanitary (SPS) measures and other issues, will be the subject of extensive negotiations that are expected to take about two years.

USMEF will be following developments in the EU very closely in the wake of the so-called “Brexit” vote. This is an unprecedented development that will have implications that are impossible to predict today. However, to the extent that the UK’s decision to leave the EU contributes to economic turmoil in Europe, this will be of considerable concern to U.S. meat companies that have made significant investments in the EU market. More generally, the UK has been a moderating voice within the EU on trade and regulatory issues, and we will be watching for signs that the UK’s departure from the bloc results in a hardening of the EU perspective in these areas, which are of significant interest to companies doing business in Europe.

UPDATE: Discussion of a bilateral U.S.-UK trade agreement has gained traction in the media, but it is important to note that the UK cannot begin any formal negotiations on a bilateral agreement until it has officially exited the EU.