How Bright are the Prospects for UK Trade and Prosperity Post-Brexit?

David P. Blake
2018 Social Science Research Network  
So long as the UK government liberates itself from the protectionist mindset of the EU and reduces trade barriers after Brexit, and UK businesses respond positively to the challenge of increased international competition (through increased productivity), the prospects for UK trade and prosperity post-Brexit are very bright indeed. The EU itself acknowledges that 90% of future growth in global GDP will be outside the EU. The costs of remaining in the EU are very high and not all purely economic:
more » ... the EU is no longer a force for global liberalisation. On the basis of both international and EU law, the monetary costs to the UK of leaving the EU should be fairly low. Similarly, the frictional costs to both the UK and the EU of their post-Brexit trade relationship should also be low. However, as a consequence of both the concessions made to date by the UK in order to demonstrate its goodwill and the hard line taken by the EU in order to discourage other member states from leaving, these costs could well end up being much higher than they need be for both sides. Of particular concern is the EU's 'level playing field' demand, laid out in its negotiating Guidelines for a future trading relationship. This would effectively prevent the UK from achieving regulatory autonomy or from pursuing an independent trade policy. The Treasury predicts a 7.7% reduction in GDP in the event of 'no deal' in which the UK retained the existing Common External Tariffs with the rest of the world and also imposed the same tariffs on trade with the EU. However, EU barriers on trade in food and manufactures raise their prices by 20%. If the UK leaves the Customs Union and these barriers are reduced from 20% to 10%, UK GDP would rise by 4%. The cost of meeting the excessive regulatory standards of the Single Market is equivalent to 2% of GDP. If the UK also leaves the Single Market, UK GDP would rise by 6% in total. 1 This is a write-up of a presentation given at the Brexit and Trade conference, organised by The UK in a Changing Europe, and held at the British Academy on 2 November 2017. It has been updated to account for events that have occurred since then. How bright are the prospects for UK trade and prosperity post-Brexit? The short answer is that they will be inversely related to the size of the tariffs on international trade that the UK itself sets after Brexit. But both the question and answer can only be fully understood after considering two sets of costs: those of remaining in the European Union and those of leaving it. The EU has created the illusion that it is simultaneously both a worker's paradise -given the social protections it guarantees to workers -and capitalism's best friend -given how effectively businesses can lobby Brussels to raise barriers against imports from outside the EU. 2 It even claims that it has brought lasting peace to Europe after centuries of conflict, whereas it is NATO that has a much greater entitlement to this claim. So successful has the EU been in perpetrating this myth that it won the Nobel Peace Prize in 2012. The reality is rather different.
doi:10.2139/ssrn.3183019 fatcat:k6n5drkrdra67lsrhapyp7wfuy