How Brexit is Impacting UK's Trade with the EU: An Economic Analysis

Summary

The 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

00:00

📈 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.

05:00

🤔 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.

10:00

📉 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.

Keywords

💡Inu Goods trade boom

The term 'Inu Goods trade boom' refers to a significant increase in trade activity, particularly in goods, within the European Union (EU). In the video, it is suggested that the UK has not participated in this boom, which is a key factor in the discussion about the impact of Brexit on trade. The script mentions that if UK exports to the EU had grown as rapidly as intra-EU exports, they would be about 27% higher.

💡Brexit

Brexit is the term used to describe the United Kingdom's decision to leave the European Union. The video discusses the effects of Brexit on trade, particularly the argument that Brexit has not significantly hurt UK trade in goods exports to the EU compared to exports to the rest of the world, which is a central theme in understanding the economic implications of Brexit.

💡Goods exports

Goods exports refer to the physical commodities that a country sells to other countries. The script uses this term to compare the UK's exports to the EU with those to the rest of the world, highlighting that the UK's goods exports to the EU have not performed much worse than those to other regions despite the introduction of trade barriers post-Brexit.

💡Services exports

Services exports are intangible products such as financial services, telecommunications, and insurance that a country provides to other countries. The video script raises a puzzle about why the UK's services exports have been doing well since Brexit, despite expectations that leaving the EU's single market for services might have had a negative impact.

💡Single Market

The Single Market is an economic zone within the EU where goods, services, capital, and labor can move freely without barriers. The script discusses the assumption that the Single Market would have a positive effect on trade, and the subsequent analysis of whether UK exports to the EU have suffered due to Brexit.

💡Trade barriers

Trade barriers are measures such as tariffs, quotas, and regulations that restrict the flow of goods and services between countries. The script mentions the imposition of trade barriers on goods exports to the EU after Brexit and questions why this has not led to a significant decline in UK goods exports to the EU.

💡Synthesized UK economy

The 'synthesized UK economy' is a hypothetical model created by comparing the UK's trade performance with that of other advanced economies whose trade performance is most similar to the UK's up to the point of Brexit. The script uses this concept to analyze the potential impact of Brexit on the UK's total goods exports.

💡Intra-EU trade boom

An intra-EU trade boom refers to a significant increase in trade among EU member states. The script suggests that the UK has not participated in this boom, which could explain the difference in growth rates between the UK's exports to the EU and EU member states' exports to each other.

💡Sector analysis

Sector analysis involves examining specific industries or areas of economic activity to understand their performance and trends. The script uses sector analysis to discuss the impact of Brexit on various sectors such as chemicals, automotive goods, and financial services, showing different effects across these sectors.

💡Pent-up demand

Pent-up demand refers to the increased demand for goods or services that occurs after a period of restraint or limitation, such as during the COVID-19 lockdowns. The script suggests that pent-up demand might be a factor contributing to the UK's services exports performing well post-Brexit.

💡Financial Services exports

Financial Services exports involve the provision of financial products and services to foreign entities. The script notes that the UK's financial services exports have grown more slowly than the average of other advanced economies since Brexit, possibly due to regulatory changes and the impact of leaving the EU's single market for financial services.

💡Transport Services

Transport Services refer to the logistics and transportation of goods and people. The script indicates that transport services have been negatively affected by Brexit, likely due to disruptions in goods trade and the impact on the movement of goods within and outside the EU.

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