Britain's departure from the European Union could send shock waves across the global economy and threaten more than a trillion dollars in investment and trade with the United States.
International policymakers are ramping up their warnings of the dangers of a British exit - popularly known as "Brexit" — from the political and economic alliance that has united Europe for the past four decades. Voters in Britain will decide whether to leave or remain in the European Union in a referendum on Thursday, but financial market volatility has already spiked as polls show a growing desire to abandon the partnership.
The decision carries hefty consequences for American businesses, which employ more than a million people in Britain. The United States is the largest single investor in Britain, and many firms consider it the gateway to free trade with the 28 nations that make up the E.U. A Brexit would jeopardize their access to those markets, potentially reducing revenue and forcing some firms to consider relocating their European operations elsewhere. That has put corporate America onto the front lines of the campaign to keep the union together, with several of Wall Street's biggest names donating substantial sums to the effort.
A Brexit would be "bad for the U.K., it would be bad for Europe, it would be bad for the world, including the United States," Angel Gurría, secretary general of the Organization for Economic Cooperation and Development, said in an interview. "You already have enough uncertainty in the world today. We don't need more."
The International Monetary Fund on Friday issued one of the most dire forecasts to date, calling the impact of Britain's departure from the European Union "negative and substantial." The fund predicted that a Brexit could reduce economic growth by up to 5.6 percent over the next three years in its worst-case scenario. The gloomy outlook is driven by an expected sharp decline in the pound and severe disruptions in trade as the nation is forced to renegotiate deals with countries across the continent, potentially on worse terms.
Those concerns were echoed by policymakers around the world last week. The Bank of England called the referendum the "largest immediate risk facing U.K. financial markets, and possibly also global financial markets." Finland's finance minister dubbed Brexit a "Lehman Brothers moment," referring to the collapse of the U.S. investment bank during the depths of the financial crisis in 2008. And in Washington, Federal Reserve Board Chair Janet L. Yellen said the threat of a Brexit factored into its decision to remain cautious and keep its benchmark interest rate unchanged last week.
"They basically all say somewhat of the same thing," said Jacob Kirkegaard, senior fellow at the Peterson Institute for International Economics. "Namely, that there is little doubt that the economics will be bad."
Financial markets are already starting to feel the tremors. Britain's currency has fluctuated wildly, while London's major stock index plunged nearly 6 percent in less than two weeks and flirted with its lowest level in four months. Skittish investors piled into the safe haven of government debt, and high demand pushed yields on the 10-year German bond into negative territory last week for the first time in history. In the United States, yields on comparable Treasury notes dropped to near-record lows not seen since 2012.
The challenges are coming at an already weak moment for Europe's economy — and the world's. Europe is still recovering from the series of financial crises that have been roiling countries such as Greece and Italy along with others across the continent. Waves of refugees from the Middle East are spurring political and cultural unrest. And there are worries about the strength of the economies of Europe's major trading partners, including China and the United States.
While financial markets would bear the brunt of the immediate impact of a Brexit, the referendum raises deeper questions for businesses on both sides of the Atlantic. If Britain votes to leave, it would spend at least two years working out the terms of its departure, with all signs pointing to an acrimonious negotiation. Britain would also need to procure trade agreements with countries around the world, including the United States, a process that could take years. Businesses say the protracted debate would leave them stuck in limbo.
"Nobody knows at this point how the world would look like with the U.K. out of the E.U.," said Emanuel Adam, head of policy and trade for BritishAmerican Business, which represents companies in New York and London. "This alone creates an uncertainty that businesses don't wish to see."
The United States exported $56 billion worth of goods to Britain last year, but that number is dwarfed by the $588 billion in U.S. investment there, in sectors ranging from banking to manufacturing to real estate. Likewise, Britain has plowed nearly
half a trillion dollars into the United States and employs more than a million workers here. Those deep ties mean that trouble on one side of the Atlantic easily can migrate to the other shore.
The heavy-equipment giant Caterpillar exemplifies the dilemma facing American businesses in Britain and the potential ripple effects of the referendum. The company manufactures heavy machinery and is headquartered in Peoria, Ill. More than 55 years ago, it opened its first facility in Britain, and now Caterpillar has 9,000 employees and 16 plants there making equipment, such as backhoe loaders and mini hydraulic excavators.
Much of that production is exported throughout Europe and other parts of the world, eased by the E.U.'s open market and standing trade agreements. A Brexit would undermine an economic alliance that the company has called "fundamental" to its business: Roughly a quarter of Caterpillar's sales and revenue comes from its European business and the more limited operations in Africa and the Middle East.
"Britain ought to stay in," Doug Oberhelman, chief executive at Caterpillar and chairman of the board at the U.S. Business Roundtable, said last week. "Keeping that market together as a whole is better than not having it together."
Brexit backers, however, say the E.U. creates burdensome regulations that have hurt British innovation and competitiveness. Last month, a group of 250 business leaders signed a letter supporting an exit, and the head of one of Britain's largest business groups resigned his post after receiving fierce criticism for appearing to sympathize with the leave campaign.
Still, many Brexit supporters are not executives but employees. A recent YouGov survey showed that leaving the union was popular among older, conservative, blue-collar laborers — many of whom live in Peterborough, where Caterpillar runs a plant manufacturing diesel engines. In April, British Prime Minister David Cameron visited the factory to address skepticism over the benefits of the European alliance.
"I don't think we should risk jobs. I don't think we should risk our economy," Cameron told workers at the factory. "We shouldn't risk the investment that a company like this brings into Britain."
Other big U.S. businesses have thrown their weight behind the effort to stay in the union, as well. Ford's U.K. division sent a letter to its 14,000 employees emphasizing the importance of maintaining stability and preventing disruptions in trade. Wall Street's biggest banks, including Citigroup, Goldman Sachs, J.P. Morgan and Morgan Stanley, reportedly have donated hundreds of thousands of dollars to Britain Stronger in Europe, the leading campaign to remain. A survey by BritishAmerican Business found that 70 percent of its members thought a Brexit would damage their operations or future investments.
It's not just mega-corporations that might be affected. Entrepreneur Angela Spang founded June Medical two years ago to sell medical devices in Britain. She now employs a dozen people and books about 1 million pounds in revenue a year. Her biggest customer is the National Health Service — and her biggest supplier is the United States.
Because the products she buys are largely priced in U.S. dollars, Britain's weakened currency has shaved 20,000 to 30,000 pounds from her bottom line in a single month. Meanwhile, Spang had hoped to distribute throughout Europe, taking advantage of a single E.U. regulatory process for the approval of medical devices marketed to its 500 million residents. But if a Brexit becomes a reality, she could lose easy access to those potential customers — and so would her U.S. suppliers.
Spang said she might have to relocate her business, not only for economic reasons but also for personal ones: She is Swedish and said she is unsure what her immigration status would be if Britain left the union. Her 8-year-old daughter, who was born in Britain, has asked whether the family would have to leave if Britain votes out.
"Personally, it's devastating. It's just heartbreaking to see that the U.K. would be taking such steps when we need to be stronger together," Spang said. "Surely there must be more hope for us to stay together and collaborate."
Staff writer Jim Tankersley contributed to this report.
Correction: An earlier version of this story misspelled Angela Spang's name.