Academics argue post-Brexit trade deal gains will be limited compared to impact of leaving EU

Tue 7 Jul 2020
Posted by: William Barns-Graham
Trade News

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Multiple trade experts have warned that gains made by the UK from new trade deals post-Brexit will be minimal compared to the impact of leaving the EU.

The UK, having left the EU in January this year, can now negotiate its own trade deals with non-EU countries such as the US and Japan.

The UK is also negotiating ‘continuity deals’ with markets such as Canada and Turkey, with whom the UK currently has preferential trade with as part of the EU. These deals represent around 15% of UK annual trade.

Analysis from the government in 2018 showed that leaving the EU – even with a free trade agreement – would lead to a loss of around 5% in long-term growth.

Small gains

Deals with Australia, New Zealand and the US will present small gains for the UK, according to Julia Magntorn Garrett, a fellow at the UK Trade Policy Observatory at the University of Sussex.

Garrett told Bloomberg that “the gains will be very small in aggregate and they’ll be nowhere near enough to make up for the losses that will come from the added trade frictions with the EU.”

“In terms of continuity deals, it’s not so much about gains to GDP, because we already gained from those agreements -- it’s about mitigating any losses,” she added.

It’s a view echoed by Sangeeta Khorana, a professor at the University of Bournemouth, who told today’s Daily Update (7 July) that “the gains expected from the deals with US, Japan, Australia and NZ are likely to be small, unlike the EU which is the largest trading partner.”

“Tariffs are already low and without a comprehensive agreement the gains are likely to be low,” she added. 

Gains per country

The UK’s current top trading partners are mostly EU countries, though the US does come top, according to figures from the World Economic Forum (WEF) and Office for National Statistics (ONS).

The US is followed by Germany (which receives 10.56% of UK exports), France (6.88%), the Netherlands (6.24%) and the Republic of Ireland (5.68%).

Potential trade partners

How do the UK’s prospective trade partner compare?

  • US – 13.39% of current UK exports go across the pond (Source: WEF). A trade deal with the US would boost the UK economy by 0.16% over a fifteen year period (source: Department for International Trade).
  • Japan – 1.67% of UK exports head for Japan, making it the UK’s 16th largest trade partner. A trade deal increase UK-Japan trade by £15.2bn “in the long run” (source: DIT). By comparison, the UK currently had a trade surplus with Ireland of £8bn in 2018 (source: ONS).
  • Australia – accounting for 1.3% of UK trade, Australia is the UK’s 21st largest trade partner. A trade deal with Australia would boost UK exports down under by up to £900m (source: DIT). The UK exported £1.8bn in goods to Austria in 2019 (source: ONS).
  • New Zealand – the 53rd largest UK trade partner, New Zealand received £1.8bn of UK exports in 2018 and a trade deal would have minimal impact on UK GDP (source: DIT). By comparison, the UK exported £2.21bn-worth of goods to the Czech Republic last year (source: ONS).

Gravity pulls

Garrett’s colleague Peter Holmes, a reader in economics at the University of Sussex, told the Daily Update today (07 July) that the minimal impacts of the UK’s proposed trade deals is not a surprise to mainstream economists.

He says most economists agree that the amount of trade a country has with others usually correlates with their size and proximity. This is also the basic assumption behind the economic analytical method of ‘gravity modelling’.

“The fundamental fact is you do most trade with people who are big and nearby and there’s just no way that trade agreements with the US or Japan could possibly replace any trade we may lose from the EU,” he said. “The percentage increase would have to be gigantic to offset the loss of trade with the EU.”