A hard Brexit could cut the UK’s trade with the European Union in half, a new study has found.
Economists from the German Economic Institute in Cologne say that if the UK crashes out of the single market and customs union with no deal next March and is forced to rely on bare World Trade Organisation rules then exports and imports would be significantly disrupted by tariffs and also new regulatory barriers.
And, in the long term, they see the potential for a huge hit to bilateral trade volumes.
In an extreme scenario, the researchers estimate that trade volumes between the UK and the EU could fall to just 53 per cent of pre-Brexit levels.
The impact would be uneven between different countries, with UK-Germany trade falling to just 43 per cent of current levels. UK-Sweden trade would fall to a less severe, although still highly damaging, 66 per cent.
“Even just a few months before the UK leaves the EU, the effects on bilateral trade relations remain unclear,” said the researchers.
“In the long run, international trade volumes will adjust – in the worst case scenario, trade may be reduced by around 50 per cent”.
Theresa May is proposing a free trade deal with the EU to be implemented when the post-Brexit transition phase ends in 2021, but has also insisted that “no-deal is better than a bad deal”.
And, despite the alarm from UK businesses, some hard line Brexiteers have said that the UK would be better off to leave the European Union without an agreement in March 2019.
“[Nigel] Farage used to say the Germans would be desperate to trade with us, this [Cologne] report shows up Farage and his fibs – but more than that the cataclysmic impact of no-deal on our trade. It seems the government are driving us over a cliff, just in a Volkswagen,” said Andrew Adonis, a supporter of Best for Britain.
The Cologne estimates for long term trade destruction if the UK leaves the EU and trades on WTO terms are in line with other econometric analyses.
Monique Ebell of the National Institute of Economic and Social Research estimated in 2017 that this scenario would result in a long term reduction in trade with the EU of 59 per cent, while even moving to a free trade agreement would hit trade by 45 per cent.