Brexit Post-Trade Recession: Beware of Urgent Results!

UK trade figures released by the Office for National Statistics (ONS) on March 12 show a sharp decline in trade in January 2021: exports fell 19% from December, while imports contracted 22%. This fall is particularly marked for trade with the European Union (EU), with British exports falling by 41%, imports falling by 29% from April 2020, and imports by 29% (Figure 1).

Figure 1: UK exports and imports with the EU from January 2020 to January 2021 (source: ONS, seasonally adjusted data).
Teacher (TR)

Trade with other parts of the world is performing relatively well: a moderate increase in exports (1.7%), and a 13% decline in imports. To what extent do these developments reflect the expected effects of Brexit on British trade?

There is a barrier to freebies

1 toThere is In January, trade relations between the UK and the EU are managed Trade and Cooperation Agreement (Trade and Cooperation Agreement). Although this agreement provides for the absence of customs duties and provisions, it does not guarantee the freedom of movement of goods guaranteed by single market participants. Exporters and importers must now meet a number of tariffs or demonstrate compliance of their products to the quality of the target country, which will further increase trade costs between the UK and the EU.

For example, a British exporter must now register with the Economic Operators (EORI) registration and identification number, to find out if there are any restrictions on imports of certain goods by the EU., Establish the appearance of the goods – sufficient local content benefit by exempting the products only from customs duties – The declaration of their export to customs, the production of licenses and certificates show that the product meets the rules in force in the European Union.

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These toll-free barriers are actually major barriers to trading in modern international trade, beyond the low tariffs for most products currently in rich countries. These costs vary greatly by sector (they are particularly significant In the fields of agriculture and agriculture) And especially affect small businesses.

To facilitate the change, the British government has chosen not to impose some customs duties on EU imports from the EU until July (and plans to extend this period). Compared to exports (-41%), British imports from the continent (-29%) correspond to a small fall.

The UK has chosen not to impose certain border tariffs on imports from the EU until July.

However, Brexit alone cannot tell us all about the fall in trade with the EU seen in January 2021. Uncertainty about the outcome of the talks and anticipation of more unfavorable trading conditions in 2021 prompted many players to present initially planned exchanges. Towards the end of 2020 and the beginning of 2021, transactions will increase in November and December (see Figure 1).

Less favorable conditions

On the other hand, in many European countries the health situation worsened in January. This led to the adoption of new regulatory measures, which reduced the consumption of finished goods and, in turn, the demand on the part of the United Kingdom. This fall in European demand may have contributed to a sharper contraction of exports to the EU than in other parts of the world. Assessing the effects of Brexit in light of the January 2021 data is certainly one Exaggerating its short-term effects.

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Leaving the single market in the trade will also lead to ignoring most of the expected effects, which will only be felt in the long run. This is the situation for migration decisions in the coming months and years: British and European economies are particularly integrated, with many value chains crossing the channel, for example in the automotive or aeronautics sectors.

Less favorable conditions for trade intermediaries or the opportunity to serve the European market from UK factories Some companies may shift their operations from the UK to the EU. However, the importance of fixed costs makes them relatively insensitive to short-term economic conditions.

Often when new projects are launched, so in the long run, companies review the structure of their value chains; In the automotive industry, for example, the choice to invent assembly lines plays a major role When the new car model is launched.

In the automotive industry, companies review the structure of their value chains when launching a new model.

In the same vein, the more invisible cost of Brexit is the resulting regulatory variance, and this will force companies to adjust their production taxes to different standards or regulations depending on the market. Mentioning other toll-free restrictions, it is an illusion to try to list them all.

Faced with all of these new barriers, companies will gradually adapt to new markets by exploring new trades.

Massive long-term effects

Table 1: United Kingdom – population, gross domestic product (GDP) and trade in goods and services.

In general, studies have shown that facilitating potential trade by joining a single market is associated with a free trade zone concluded between the United Kingdom and the European Union. These results are expected to have a massive impact on the UK trade in Brexit products in the long run, and to a lesser extent reflected in the services trade 40% of UK trade (The corresponding January monthly data is not described by the partner country).

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For example, one of our recent articles puts a long-term decline in imports of goods from the EU into the UK From three to one-half, Depending on the assumptions used, in a situation where a single free market between pre-Brexit member states would be replaced by a free trade zone.

This decline will be partially offset by an increase in trade with other parts of the world. Such assessments obtained on the basis of the previous post’s assessment of the effects of European integration should certainly be explained with caution; However, they aim to integrate all the mechanisms that will affect trading in the coming months and years.

Although it is tempting to measure the effects of Brexit based on the first trade figures available to us, it is advisable to be cautious in this tutorial: there is a risk of both exaggerating the short-term effects of Brexit, the role of anticipatory agents and cyclical factors, and underestimating its long-term effects because they have not yet manifested themselves by definition.

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