Since the United Kingdom (UK) voted in June 2016 to leave the European Union (EU), international markets have experienced uncertainty about how trade with the UK would change. This change in trade balances is the subject of today’s article.
- If the UK and the EU were to agree on an exit plan, the UK would maintain its current trade agreements with international partners for the next two years before implementing trade deals of its own.
- If the UK does not reach an agreement with the EU (i.e. A No-Deal Brexit), existing trade agreements between the UK and other countries will no longer apply.
If the UK does not reach an agreement with the EU it means that other, non-EU countries that export goods to the UK will be subject to highly expensive MFN tariffs (MFN tariffs are what countries promise to impose on imports from other members of the WTO, unless the country is part of a preferential trade agreement…dramatically tipping the balance of exports around the world….
In April 2019, the United Nations Conference on Trade and Development released a report titled Brexit. Implications for Developing Countries, which analyzes the consequences that the UK’s changing tariff structure as a result of Brexit will have on other countries. Below is a visualization of their finds:
- …Shades of pink indicate the countries will lose exports, while shades of green indicate that countries will gain exports.
- The size of each country corresponds to the magnitude of the effect. For visualization purposes, we are not showing countries which have an export change of less than $1 million.
Top 5 Countries That Stand to Gain the Most From A No-Deal Brexit
1. China – $10.2 billion increase in exports
2. United States – $5.3 billion increase in exports
3. Japan – $4.9 billion increase in exports
4. Thailand – $3.9 billion increase in exports
5. South Africa – $3 billion increase in exports
Top 5 Countries That Stand to Lose the Most From No-Deal Brexit
1. European Union – $3.6 trillion decrease in exports (not shown on the map)
2. Turkey – $2.4 billion decrease in exports
3. South Korea – $714 million decrease in exports
4. Pakistan – $497 million decrease in exports
5. Norway – $209 million decrease in exports
According to the UN report, the UK is currently responsible for 3.5% of world trade and imported $680 billion worth of goods from other countries in 2018.
- Although the European Union stands to lose the most in the event of a No-Deal Brexit, the report states that developing countries with a high percentage of exports to the UK, including Turkey and Pakistan, would also experience severe economic harm.
- By contrast, countries that currently have higher tariffs than the UK, including China, the U.S., and Japan, would gain the most exports.
Overall, the effects on world trade remain to be seen depending [on whether or not]… the EU and the UK reach a deal.