Brexit: Major shock as EU imports fall by a quarter

Penny Mordaunt discusses post-Brexit UK-US trade deal

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The Centre for Economic Performance (CEP) at the London School of Economics and Political Science found the shocking fall in what they claim is the most comprehensive study yet into the effects of Brexit on trade between the UK and EU. It did find, however, that exports to the bloc avoided such a dramatic fall, with a smaller and temporary drop.

The CEP say that it found trade between UK and EU was stable after 2016’s referendum until 2020.

It added that there was no evidence that uncertainty and anticipation – often heralded to be some of the most damaging post-Brexit forces for the economy – had any substantial impact on relative trade.

However, trading was hit with a “substantial reorientation” after the introduction of the UK-EU Trade and Cooperation Agreement (TCA) at the start of 2021.

The paper, named Unravelling Deep Integration: UK Trade In The Wake Of Brexit, analyses the first year of trade under the agreement and does not capture long-term effects.

It described the shift as a “major shock”.

The paper said: “The UK’s departure from the EU’s single market and customs union at the start of 2021 caused a major shock to UK-EU trade.

“We estimate that the new TCA trade relationship led to a sudden and persistent 25 percent fall in relative UK imports from the EU.”

Rebecca Freeman, co-author of the report clarified that exports were still affected by the agreement, albeit less dramatically.

She said: “Although it is surprising that imports were hit harder than exports during the first year of the TCA, it would be a mistake to conclude that exporters were unaffected.

“The number of export relationships with the EU fell sharply in 2021.”

According to an analysis of changes in trade patterns for 1,200 products, “lower value relationships” were hit particularly hard for exports to the EU.

CEP said the findings correlate with widespread claims that the trade agreement resulted in many smaller UK firms to stop exporting to the EU.

Co-author and Cambridge PhD student Thomas Prayer said that the fall in the number of exported products to the EU is “remarkable”.

He added: “It appears the UK simply stopped selling a lot of products to smaller countries in the EU.”

Thomas Sampson, another co-author and associate professor of economics at LSE, said: “The Trade and Cooperation Agreement has increased trade costs, leading to a fall in imports from the EU and reducing the number of products exported to the EU by UK traders.

“These changes make the UK a harder place to do business.”

Co-author and professor of economics at UCL, Kalina Manova, said: “These findings suggest that UK firms did not rush to adjust their trade activity following the referendum, despite dramatically heightened uncertainty about the future UK-EU trade relationship.

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“Once effective trade costs did rise, however, they started to quickly reorganise their global input sourcing away from the EU while seemingly more gradually adjusting their export sales.”

A Government spokesman said: “Through our Export Support Service, expanded export academies and a landmark export strategy, we are ensuring that businesses of all sizes have the support they need to trade effectively with Europe and seize new opportunities as we strike trade deals around the world.

“Given the impact of Covid-19 on global supply chains, we have been introducing import controls in phases throughout 2022 in order to give businesses more time to prepare.

“Through our targeted multimedia campaign and a series of sector-based webinars, businesses are also signposted to the relevant import information and support to help them.”

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