Brexit fears started to hit UK trade as early as 2015 – new research

After the UK officially left the EU at the end of 2020, it experienced a dramatic drop in trade. The media was full of stories of lengthy customs blockades and empty shelves in supermarkets.

This included sharp drops in exports of agricultural products like beef, milk and cheese, for example, after the UK and the EU failed to agree on a alignment of standards that would have allowed free trade to continue.

Since then, there has been some improvement, with the latest figures showing that exports and imports with the EU in the three months to August 2021 were better than the previous three months. Likewise, however, there is evidence that the UK has lost market share in Europe due to Brexit, as EU imports from other countries have increased in the wake of the COVID crisis. .

Yet the raw export and import figures alone cannot tell you much about what happened to UK trade. You need to disentangle the effects of Brexit from a myriad of other variables that can skew the numbers, including COVID.

This is a complicated issue that will take some time to resolve, although the relative sharp decline in UK exports to Europe suggests Brexit is the main culprit.

At the same time, however, it would be wrong to focus too much on 2021 when examining the effects of Brexit on UK trade. We’ve just published a new article examining how this affected UK trade between 2015 and 2018. It shows for the first time that Brexit fears have weakened the UK’s trade position long before the exit vote was even released. of the EU takes place. It also indicates a long-term adjustment in trade relations which will continue for many years.

Our Approach We initially started looking at the effects of voting on Brexit in 2017. Using the same method that actually won the Nobel Prize in Economics, we sought to rule out other effects on the data by comparing UK exports to a particular EU. before and after the June 2016 referendum with other pairs of comparable trading nations.

We have chosen pairs of nations to compare from a wide range of possibilities, for example using trade between Japan and South Korea to compare France and the UK.

When we released our first results at the end of 2018, we reported that even shortly before the 2016 vote, concerns over Brexit were already reducing Britain’s trade with the EU and elsewhere. This was consistent with an earlier study by another team of researchers on the effects of voting on UK GDP, as well as subsequent studies looking at foreign direct investment and productivity.

Since then, we have significantly extended and revised our study. Unlike almost every other study, we are now factoring in the likelihood that Brexit concerns began to have an economic effect even further in time – around the time of the Tories’ surprise victory in the May general election. 2015. Indeed, Britain’s exports of goods to non-EU countries also began to fall.

The most likely explanation for these results is that UK goods exporters rely heavily on EU countries as part of their supply chain. Even a modest increase in uncertainty surrounding these chains seems to have persuaded customers to look elsewhere, whether or not they are in the EU. Notably, UK imports of goods from the EU and elsewhere only started to decline after the referendum.

By the time we get to March 2018 in our new paper, Britain’s merchandise exports to the EU were already 20-25% below trend, while its merchandise exports to non-EU countries. the EU were 15% below trend.

We have also extended our analysis to services, which account for around half of UK exports. Here we only have data on aggregate exports, rather than trade with specific partners, but again we see that UK exports started to decline in 2015, albeit more after the referendum, and were around 8 % lower than the trend at the start of 2018.

What it means The declines in exports to the EU since January are part of a longer and larger drop that dates back to 2015. Changing trade patterns take time for companies to find new partners or renew or terminate contracts. This means that much of the effect of Brexit on trade started with importers from other countries anticipating difficulties and making changes to their suppliers long before the UK officially left the EU.

Since these are such slow processes, it is likely that adjustments will continue in the years to come. Thus, despite the UK’s deals with non-EU countries (which, before the trade deal with Australia, were essentially renewals of existing deals), its global competitiveness has been affected by the effects of Brexit on UK supply chains.

One caveat should be that part of the drop in demand for UK products could be offset by a cheaper pound. The pound has fallen sharply in the run-up to the referendum, and although it has remained roughly at the same level since 2016, many believe it will fall further in the future due to Brexit. If so, it could mean increased demand for UK exports, but it would also mean imports will be more expensive.

So while, say, Australian wine might no longer bear tariffs, its price might still increase overall. At a time when inflation is already causing concern, this is another factor that could push prices up. (The Conversation) SCY SCY

(This story was not edited by Devdiscourse staff and is auto-generated from a syndicated feed.)

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