Brexit had a lot less impact on trade than you might think

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I would add that at least some of the weakness in imports and exports, even that due to Brexit, should be temporary. Businesses are still adapting to new rules and systems.

There are still many unknowns here, including those around the Northern Ireland protocol and the repeated delays in UK border checks. Just as Brexit uncertainties have dampened investment, it is also likely to have dampened both imports and exports.

Meanwhile, the impact on the economy is also still uncertain. Some of the apparent declines in trade may simply reflect differences in how the same flows are recorded before and after Brexit, and therefore have no real impact.

The economic impact of a corresponding reduction in export and import volumes is also questionable. (The UK’s trade deficit has widened recently in value terms, but this partly reflects the higher cost of imported raw materials due to world events.)

Even if the OBR’s 15% figure for the long-term impact on trade turns out to be correct, there is still a big jump between that and a 4% decline in GDP. To arrive at this figure, it is necessary to make a strong assumption on the link between trade openness and productivity.

Again, it is reasonable to assume that trade disruption has a negative impact on productivity (if not, why did trade occur in the first place). But hard evidence of the magnitude of this effect is still quite thin, especially for economies like the UK that are already relatively open and developed.

Even the historical studies on which Brexit skeptics generally rely show imprecise and statistically insignificant results. Other studies have found no link, or that productivity appears to drive trade, rather than the reverse.

Productivity is notoriously difficult to explain or predict – as the OBR itself has repeatedly found. While it is plausible that a reduction in trade intensity alone could reduce productivity, Brexit could also have positive effects on productivity. For example, better management of immigration could help pull the UK out of the low pay and low productivity trap.

Finally, none of this takes into account the free trade agreements that have not yet been concluded, nor the regulatory changes that may occur in the future. This is because OBR forecasts are still based on current government policies. Of course, some would argue that the economic benefits here will be small. But that’s just a guess, too.

However, it also shows the importance of making the most of the opportunities created by Brexit. If the only substantial change is that it is more expensive to trade with the rest of Europe, UK consumers will be worse off. Probably not as much as some think, or would have us believe, but a reduction in trade would still be a “bad thing”.

Vague calls for the benefits of import substitution, including greater self-sufficiency and a boost to domestic manufacturing, shouldn’t cut the ice here. Instead, global Britain must embrace freer trade with the rest of the world, as well as smarter regulation at home. This is what Brexit should look like.


Julian Jessop is an independent economist. He tweets @julianhjessop

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