How Brexit is Impacting UK's Trade with the EU: An Economic Analysis
Summary
TLDRThe transcript discusses the impact of Brexit on UK trade, noting the puzzling performance of goods exports which have not declined as expected post-Brexit. It suggests that the UK has missed out on an intra-EU trade boom, resulting in a shortfall in goods exports. The service sector's resilience is also examined, with some areas like financial and transport services showing slower growth, possibly due to regulatory changes and trade barriers. The analysis concludes that Brexit has had a significant impact on trade, potentially affecting GDP.
Takeaways
- 📈 There has been an 'Inu Goods trade boom' that the UK has not participated in, which has affected its exports to the EU compared to intra-EU trade growth.
- 🇪🇺 The UK's exports to the EU have not declined as expected post-Brexit, remaining relatively stable compared to its exports to the rest of the world.
- 🤔 The lack of a significant decline in UK goods exports to the EU, despite imposed trade barriers, presents a puzzle for those who expected Brexit to have a more pronounced negative impact.
- 📊 The comparison of trade data suggests that if UK exports to the EU had grown as rapidly as intra-EU exports, they would be approximately 27% higher.
- 🔍 Sector-specific analysis reveals varying impacts of Brexit, with some sectors like chemicals and automotive goods showing clear negative effects on UK exports.
- 📉 The UK's service exports have been performing well post-Brexit, which is somewhat unexpected given the potential impact of leaving the EU's single market for services.
- 🌐 The gravity models suggest that service trade within the EU should have been more affected by Brexit, but the UK's service exports have not shown a clear decline.
- 📈 The demand for tradable services may have increased due to pent-up demand post-COVID lockdowns, potentially boosting the UK's service exports.
- 💼 However, the UK's financial and transport services have grown more slowly than the average of other advanced economies, suggesting some Brexit impact.
- 📉 The overall shortfall in UK goods exports is estimated at about 13%, and for services, it's about 10%, which aligns with predictions of Brexit's impact on GDP.
- 🤷♂️ The final verdict on the extent of Brexit's impact on trade and GDP remains uncertain, with ongoing debates and analyses.
Q & A
What is the main argument presented in the transcript regarding the impact of Brexit on UK trade?
-The main argument is that while there has been an intra-EU goods trade boom, the UK has not participated in this boom, which has resulted in a shortfall in UK goods exports to the EU compared to what it would have been if it had grown at the same rate as EU exports to each other.
How much higher would UK exports to the EU be if they had grown as rapidly as EU exports to each other?
-If UK exports to the EU had grown as rapidly as EU exports to each other, they would be about 27% higher.
What is the 'synthesized UK economy' mentioned in the transcript?
-The 'synthesized UK economy' is a hypothetical model created based on the trade performance of other advanced economies similar to the UK's up to the point of Brexit. It is used to compare and analyze the impact of Brexit on the UK's trade performance.
What is the current shortfall in UK total goods exports as analyzed in the transcript?
-The analysis shows a shortfall of about 13% in UK total goods exports compared to the synthesized UK economy.
How does the transcript explain the puzzle of UK goods exports to the EU not performing much worse than those to the rest of the world?
-The transcript suggests that the puzzle is explained by comparing the UK's trade to the remaining EU member states, where there are significant differences in intra-EU trade growth compared to the UK's exports to the EU.
What sectors have been particularly impacted by Brexit according to the transcript?
-Sectors such as chemicals, automotive goods, and miscellaneous manufacturers have been particularly impacted by Brexit, with noticeable differences in trade performance compared to intra-EU trade.
How has the Brexit affected services exports from the UK?
-Despite Brexit, services exports from the UK have been doing quite well, which the transcript suggests could be due to rising demand for tradable services, although it also raises the question of whether they would have done even better without Brexit constraints.
What is the overall shortfall in services exports from the UK as discussed in the transcript?
-The transcript suggests an overall shortfall of about 10% in services exports from the UK.
How does the transcript address the impact of Brexit on financial and transport services exports from the UK?
-The transcript indicates that financial and transport services exports from the UK have been growing more slowly than the average of other advanced economies, possibly due to regulatory changes and impacts on goods trade respectively.
What is the potential impact of Brexit on the UK's GDP as suggested by the transcript?
-The transcript suggests that the impact of Brexit on trade could lead to a hit on GDP, with models predicting somewhere between a 2% to 3% impact based on the shortfalls in goods and services exports.
Outlines
📈 Brexit's Impact on UK Trade with the EU
The speaker discusses the analysis of UK trade post-Brexit, suggesting that while there has been a boom in intra-EU goods trade, the UK has not experienced the same growth due to not being part of the EU trade boom. The speaker argues that if the UK's exports to the EU had grown as rapidly as EU exports to each other, they would be approximately 27% higher. The analysis indicates that Brexit has not significantly affected goods exports to the EU compared to the rest of the world, which is puzzling given the trade barriers imposed. The speaker also mentions the use of a synthesized UK economy for comparison, which shows a shortfall in UK goods exports, and the importance of sector-specific analysis.
🤔 The Paradox of UK Services Exports Post-Brexit
This section delves into the performance of UK services exports since Brexit, questioning why they have been doing well despite the expectation of a negative impact due to the UK leaving the EU single market for services. The speaker explores the idea that demand for tradable services has risen, potentially due to pent-up demand during COVID-19 lockdowns, which could explain the strong performance of UK services exports. However, there is also a suggestion that these exports might have performed even better without Brexit constraints, particularly in sectors like financial and transport services where the UK has grown more slowly than the average of other advanced economies.
📉 The Cumulative Impact of Brexit on Trade and GDP
The final paragraph summarizes the overall impact of Brexit on UK trade, highlighting a shortfall in both goods and services exports. The speaker notes that the cumulative impact of these trade shortfalls is estimated to be around a 10% shortfall in services exports and about 13.5% in goods exports. These figures are significant and align with predictions that Brexit could lead to a 2-3% impact on GDP. The speaker concludes by acknowledging that while there is evidence of a large impact of Brexit on trade, the ultimate impact on GDP remains a subject of debate.
Mindmap
Keywords
💡Inu Goods trade boom
💡Brexit
💡Goods exports
💡Services exports
💡Single Market
💡Trade barriers
💡Synthesized UK economy
💡Intra-EU trade boom
💡Sector analysis
💡Pent-up demand
💡Financial Services exports
💡Transport Services
Highlights
Analysis suggests a trade boom in goods exports among EU countries, with the UK missing out, potentially impacting its export growth.
The UK's goods exports to the EU have not performed significantly worse than its exports to the rest of the world, despite Brexit.
Brexit's impact on trade is puzzling, as there has been no clear negative effect on goods exports to the EU compared to other regions.
A comparison of trade data indicates a shortfall in UK goods exports, which could be attributed to Brexit.
The UK's trade performance has been weaker than a synthesized UK economy based on similar trade patterns of advanced economies.
Intra-EU goods trade has significantly outpaced the UK's exports to the EU, suggesting a missed opportunity for growth.
Sector-specific analysis reveals varying impacts of Brexit on different goods exports, with chemicals and automotive goods notably affected.
Services exports have been performing well post-Brexit, contrary to expectations given the incomplete single market in services.
The demand for tradable services may have increased, potentially boosting the UK's services exports despite Brexit.
Financial and transport services have grown more slowly than other advanced economies, possibly due to Brexit-related regulatory changes.
The UK's insurance and pension services exports have seen a significant increase, possibly due to market adjustments post-Brexit.
The overall shortfall in services exports is estimated to be around 10%, with goods exports showing a similar pattern.
The impact of Brexit on GDP remains a subject of debate, with trade impacts suggesting a potential reduction.
The analysis uses empirical data to assess the impact of Brexit on trade, providing a basis for further economic discussions.
The presentation challenges the assumption that Brexit would automatically lead to a significant decline in trade with the EU.
The UK's trade performance raises questions about the effectiveness of the single market and its influence on member states' exports.
The analysis calls for a deeper investigation into the specific sectors and mechanisms that could explain the UK's trade trends post-Brexit.
Transcripts
this kind of analysis leads one to think
that there's been an
Inu Goods trade boom that's been going
on um and the reason that the UK has not
uh why why it's exports to the EU who
attract those to the rest of the world
is there hasn't taken part in that boom
so if it had grown as rapidly as uh e if
UK exports to the EU had grown as
rapidly as EU exports to each other uh
then they would be about
27 27%
higher one of the reasons why you think
that the the brexit has not hurt UK
trade is that in Goods
exports we haven't
seen EU uh UK Goods exports to the EU
perform much worse than UK exports to
the rest of the world yeah which I think
is a perfectly reasonable claim and it
has been a real real puzzle um for those
of us who assume that um the EU is our
largest trading partner the single
Market had effects on trade that we can
measure so therefore why don't we see
Goods exports to the EU doing much worse
than Goods exports to the rest of the
world when we've imposed trade barriers
on Goods exports to the EU um and that's
kind of shown in this chart here um
which you know is very similar to one
that the C
showed um and you can see that the red
line is UK exports to the rest well this
is all Goods um and they've
tracked uh e uh exports to the EU um so
you know how do how do we solve solve
that puzzle the the second puzzle I just
wanted to Think Through um is which
Katherine also alluded to is why have
Services exports been doing quite well
um since brexit you know for for those
of us who you know all of us think I
think that the single Market in Services
was not particularly complete and was
much stronger in some sectors than
others but even so the gravity models
suggest that there is more services
export Services trade between EU members
than one might expect given how rich
they are how close they are uh to one
another um and so we would expect there
to be a clear impact on UK Services
exports if we leave the EU and suddenly
it's harder for financial insti for
example to do business with customers in
the European Union so I just want to
just want to think about those two
rattle through um uh but I just want to
think about those two issues because
they are a real challenge to those of us
who do believe that brexit has had an
impact on
trade the first thing say this is the
this is these are the uh evil doel
gangers that um have been so
controversial um but uh this is this is
um UK Goods Goods exports in total
um uh and the way that this kind of
Exercise Works is um we take a whole
bunch of advanced economies um and then
we kind of create a synthesized UK
Economy based
upon those countries within advanced
economies whose trade performance is
most similar to that of the UK up to the
point of leing a single market and
Customs
Union um LSC UK performs much worse than
kind of synthesized UK economy then we
think okay if there's an impact of
brexit here um if not then no and we can
see that using that kind of analysis
which has been very controversial but um
you know has has some strong empirical
grounding um and it's why they're used
in the social sciences that we see a
quite big shortfall in UK total Goods
exports you see a short of about
13% um and we see that you know the
recovery um in UK in UK Goods has been
rather weaker than um that of that of
the synthesized UK the Dopp gang um so
how do we explain this conundrum you
know we've got UK Goods exports to the
EU tracking those to the rest of the
world but then we see using this type of
analysis that there's a there's a
shortfall um and I think the answer is
um that we if we compare the
UK's trade to the remaining EU member
states then we see some pretty big
differences um between Inu trade
European exports European countries
exports to one another and European
countries exports to the rest of the
world if you remember um the UK's
exports to the EU the red line and the
UK's exports to the rest of the world
they've been kind of tracking each other
pretty much you see
that um but EU the EU member states
exports to other EU member states has
grown
massively it's up to if you know 2019 is
100 so it's up 40% you know so that's a
big difference and much higher than the
UK EU line and then with EU to the rest
of the world there's a bit of a
difference we can see EU exports to the
rest of the world but it's not nearly as
not nearly as big
so this kind of analysis leads one to
think that there's been an intra euu
Goods trade boom that's been going on um
and the reason that the UK has not why
why it exports to the EU who attract
those to the rest of the world is it
hasn't taken part in that boom so if it
had grown as rapidly as uh e if UK
exports to the EU had grown as rapidly
as EU exports to each other uh then they
would be about 27 27% higher about
quarter higher and just thinking through
I mean Katherine mentioned some
different uh sectors and I think um it's
really important to to look at sectors
in a kind of broad way because I can
come up with all sorts of sectors where
there have been big impacts of uh the UK
leading the EU and it's really obvious
like chemicals for example um or you
know there there are particular
particular issues in uh the supply chain
of particular Automotive good um
products where there have been very
clear impacts on UK exports but if we
look at in a fairly broad kind of way
then we can see that UK exports to the
EU have done much worse than EU exports
to to the EU since December 2020 I.E you
know the end of the worst of the
lockdowns or the beginning of the end
and the beginning of the recovery in
Goods trade and we can see that in food
life animals Beverages and tobacco that
UK exports the EU are up 15% whereas the
EU exports to each other are up 40%
chemicals
uh UK exports the EU were down 12% while
EU exports to the EU were up 32%
material manufacturers we don't really
see much difference in UK exports to the
EU for three years but we see it's a
third higher between EU member State no
difference in manufacturing transport
equipment and I think Katherine's slide
was very interesting on that actually
and I agree with a lot of what she said
and then finally miscellaneous
manufacturers which is just everything
that doesn't fit in anything else and
then we see a big effect as well and so
overall we can see that um the UK
exports to the EU have been doing much
worse than Inu
exports so moving on to the services
question this is this this I'll be brief
um this I think it's still it's still a
bit of an open question but I I have a a
pretty um horribly colored chart I'm
sorry about that um uh I have I have at
least a an idea about why you P Services
exports have been doing apparently so
well and again you have to think about
demands um so if you know generally uh
demand for tradable services has been
rising perhaps because of pent up uh
demand during covid
lockdowns um then you would expect the
UK which as Katherine says is a very
strong Services exporter for their
services to do well um but the question
is would they have done even better if
there weren't some constraints I think
this chart suggests that perhaps they
they they would have done so um we can
see with telecom's computer information
services so this is how well how has the
UK's exports grown as quickly as the
average of advanced economies globally
and if it's just not then it means no UK
exports have grown at the same rate as
theast economies if it's positive then
UK has grown faster and negative UK has
grown slower than the advanc economies
and we can see that in telecom's
computer information services and other
business services it's being about the
same insurance and pension has
skyrocketed I have some ideas about that
but nothing very concrete but in
financial and transport services we can
see that um since 2019 the UK has been
slow growing more slowly than other
Advan the average of other advanced
economies and that kind of makes sense
is those are the two sectors of the
single Market which are most developed
um you know heard all sorts of
complaints about financial uh regulatory
harmonization when we were members of
the EU um and so leaving that system
where if you do leave it then there are
lots of things you just legally are not
allowed to do as a bank that's got to
have some impact on your on your
financial exports and we can see that
that that's true that Financial Services
exports have grown more slowly in the UK
than the average advanced
economies and and then with Transport
Services you know we've seen a hit to
Goods trade Transport Services is quite
a lot of Lorry driving shipping moving
Goods around um and so it makes sense
that transport services have been have
been growing more slowly than uh than uh
the advanced economy average and that
that's kind of it the final point I
would just make is that um if you if you
add up these impacts on Services exports
then it it it essentially amounts to
about a 10% overall shortfall in
Services
exports um if you add up the um the
impact on Goods exports and it amounts
to about 13 and a half%
shortfall um and those figures are the
the figures that people put into the
kind of models that predicted somewhere
between a two and % impact of brexit on
GDP um so we can argue about whether
that is what the impact would be whether
we would end up with a trade hit leading
to those kinds of impacts on GDP and the
juror is definitely still out on that
but that evidence is the reason why I
believe that there has been a large uh
impact of uh brexit one trade thank you
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