Trade Disruption Caused by Brexit

There is no doubt that with Brexit, the global trade will be disrupted. Although the main focus is on the UK-EU relationship and how trade between them will be affected, the whole world will be influenced by these changes and disruption.

 

In the event that Britain ends with no deal with the European Union (EU), all its exports towards the EU will be slapped with tariffs. Similarly, for the EU, the United Kingdom (UK) will impose its own tariffs at its border. As a result, goods and services from both regions will become more expensive, resulting in less demand and finally less trade.

 

Global Trade of the UK and EU

The UK is in fact very dependent on Europe (EU including Norway and Switzerland) for its global trade. About 56% of the UK's total trade is with Europe. While 53% of UK's total exports go to Europe, it also imports a significant amount from the European continent - 58% of the total.

With a hard-Brexit and without any trade deal with the EU, both its exports and imports will be eventually slapped with tariffs. Since Europe is UK's largest trade partner, representing more than half of its global trade, even a slight drop of 5-10% in trade will not be easily replaced by the other trade partners in the world.

As for the EU, in 2016, it traded €3.45 trillion globally and the UK represented 14% of the total. Comparatively, the UK is significantly more dependent on the EU than vice versa. Therefore with the potential Brexit trade disruption, both sides will be affected but the impact on the UK economy may be more severe, if the UK does have any trade agreements with the EU and any other trade partners.

Over the last 44 years, the UK has depended on the EU to negotiate all the free trade agreements (FTAs) with the various countries/regions in the world. It has benefited from all the advantages that these FTAs brought along.

However, in a post-Brexit environment, if the UK is not able to replicate all the EU FTAs, there will be no trade deals between the UK and the world. This will have a massive impact on its trade activities. Tariffs at all borders will be imposed for all trade between UK and the world. The worst case scenario is that all trade activities grind to a standstill at all custom borders with countries struggling to understand how to deal with goods to and from the UK.

Contingency Plans

 

Therefore, companies that have significant trading activities with the UK (and the EU) will have to prepare contingency plans, ensuring that Brexit will not significantly affect them. For instance, they need to diversify their market base. As for those producing goods mainly targeted for the UK market, they probably will have to start assessing whether they need to literally localise their operations in the UK.

 

While, for others that depends on raw materials or semi-finished/finished goods from the UK, they will have to start seeking alternative sources so that they don't find themselves in a situation where their imported British products are stuck at the custom borders.

Related Readings

Steel Advisory Partners Brexit

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