Introduction

In all likelihood, Brexit is coming. What will its effects be and what countries will be injured the most? It clearly “depends.” While it is apparent that the UK would like trade linkages to remain the same, numerous Economic Union (EU) members have been piqued by Brexit and  want to strip away some of the UK’s trade benefits. At least they do as a starting point for negotiations. Below, the benefits and costs of a breakup are examined.

So Far

Initially, the sense was that Brexit would weaken Britain. This resulted in a weaker Pound: down nine percent against the Euro and twelve percent against the Dollar. And as a result, the UK’s exporters have been doing quite well since the vote.

What Will the Trade Effects Be?

 The outcome of the Brexit negotiations remains uncertain. However, it is reasonable to assume that trade between the UK and the EU will be restricted in various ways. Who will this hurt the most? This will be reflected in lower exports and/or higher import prices.

a. EU Members

If Brexit occurs, it is likely that the completely free trade access that the UK now enjoys will be lessened. Table 1 provides EU members’ exports and imports to and from the UK. EU countries are ranked by what share of their exports go to the UK. The EU exports far more to the UK than it imports. The export dependency of Ireland is greatest, followed by the Netherlands, Belgium and Germany. On imports, the UK share of Ireland dwarfs all the others.

The UK created enmity among EU countries via the Brexit vote. However, the EU’s exporters will pressure the EU government to negotiate for very few restrictions on EU exports to Britain.

Table 1. – The EU: Exports to and Imports from the UK (mil. US$)

Source: UNCTAD

b. The UK

Table 2 indicates that the UK imports far more goods than it exports to both the EU and in total. Part of these trade deficits are compensated by capital inflows. The Bank of England estimates that these capital inflows are significant: $75 billion annually. Germany, the Netherlands, France, Belgium and Ireland are England’s most important EU trading partners.