Behind the Headlines

“Post-Brexit trade deals unlikely to help UK economy much”

Written on 10/15/2018



What’s the story?

The Office for Budget Responsibility has released a report examining the future of UK trade if Brexit goes ahead, which finds that there are very few economic benefits from striking new trade deals with partners outside of the European Union. Read more on the Reuters website.


How reliable is it?

Reliable. The report is based on the gravity model, a method commonly used by trade experts (including the UK government) which shows that the greater the distance between countries, the less fruitful the trading relationships.


What’s the background?

  • Theresa May’s attempt to agree a divorce deal with the EU hinges on whether the government is willing to agree to some form of customs union with the rest of the EU as a backstop solution to the question of the Irish border. Evidence
  • Many Leave-supporting MPs are opposed to this idea, because being inside a customs union would curtail the UK’s ability to agree separate trade deals with other countries or blocs. Evidence.
  • A new report from the OBR argues that any benefits from new trade deals would be negligible. Evidence
  • This report asserts “the evidence suggests that the benefits of additional bilateral trade deals are likely to be relatively modest” (page 77). Evidence
  • This echoes the government’s own estimates that a US-UK trade deal would only add 0.2% to UK GDP in the long term. Evidence  
  • Another paper estimates the benefits would be even lower, estimating it would add a mere 0.05% to UK GDP. (page 77) Evidence
  • These calculations are based on the gravity model of international trade, a widely accepted thesis that shows how countries further apart trade with each other less. Evidence
  • Indeed, the Centre for European Reform has argued that “it remains overwhelmingly in the UK’s economic interest to prioritise a close economic relationship with the EU over any potential trade deal with the US.” Evidence
  • Moreover, these reports do not take into account the drop in food standards that would be a necessary part of any trade deal with the US, leading to chlorinated chicken, and potentially even traces of rat hair and maggots in food sold in the UK. Evidence
  • They also do not account for the trade deals that the UK already has with third countries through its membership with the EU, which it could lose if it goes ahead with Brexit, particularly a “no-deal” scenario. Evidence.

Photo courtesy Department of Defense (Cherie Cullen)


This Behind the Headlines Briefing was first published on the DoorstepEU app: http://www.richardcorbett.org.uk/app