The LSE have produced a puzzling report about UK-EU trade after the first year of operation of the TCA. It suggests Brexit has created a ’major disruption’ to UK trade, which is not altogether surprising since there have been any number of similar reports over the past few months. The FT cover it by saying "trade relationships tumble after Brexit." and that red tape, customs controls and taxes have caused many small businesses to stop trading with Europe. However, there are some odd things about it which are hard to reconcile.
Here's the tweet from the FT's Peter Foster:
🚨🚨🇪🇺🇬🇧🚨🚨NEW research by @thom_sampson et al. of LSE shows #Brexit triggered "steep decline"in the number of trading relationships Britain has with the bloc -- with small biz hit hardest - my @ft latest. Stay with me for links and charts. /1https://t.co/iWFfm9p4Jp
— Peter Foster (@pmdfoster) April 26, 2022
But here's the puzzle. The LSE report says:
"We estimate that the new TCA trade relationship led to a sudden and persistent 25% fall in relative UK imports from the EU. In contrast, we find a smaller and only temporary decline in relative UK exports to the EU, but nevertheless a large and sustained drop in the extensive margin of exports, driven by the exit of low-value relationships. The timing and asymmetry of Brexit effects on UK imports and exports is puzzling and provides evidence of important differences in adjustment to integration and disintegration shocks."
Let me say it's a technically complex paper to read with the title: Unravelling deep integration: UK trade in the wake of Brexit. You're welcome to have a go at understanding it.
Apparently, it uses HMRC trade data which the FT seem to think gives it authenticity which I suppose is true, yet it finds our exports to the EU suffered only a "smaller and only temporary decline" while imports from the EU have taken a real hit, falling by a massive 25%.
This is odd given that a few days ago, the EU published its own assessment of the TCA which concluded the reverse:
"On trade in goods, Eurostat estimates, for 2021, EUR 146 billion of EU imports from the United Kingdom which is a marked decline both compared to 2020 (-13.6%) and to 2019 (-24.8%). EU exports to the United Kingdom are estimated at EUR 283 billion, up by 1.9% compared to 2020 but still 11.4% below the level registered in 2019."
Yet it is these very EU exports (our imports) which are down by a quarter according to the LSE.
It makes no sense.
Other newspapers are struggling to present the report, The National in Scotland have an article : Brexit: UK trade with EU plummets in year since Boris Johnson's deal, which talks about 'trade' rather than exports. They talk of:
"The research, by the Centre for Economic Performance (CEP) at the London School of Economics and Political Science, found imports have fallen by 25% relative to those from elsewhere in the year since the agreement with the EU was finalised.
"Exports to the bloc were not as badly affected, but there was a decline relative to the rest of the world, the analysis found."
- Increased import prices
- Increased cost of living
- Lower real wage growth
- More outward investment from the UK to the EU
- Reduced domestic investment
- Reduced productivity
- Slowdown in GDP growth
If the UK government is using the HMRC numbers showing a 25% fall in imports without any additional barriers to trade you can see why delaying or abandoning those non-tariff barriers looks attractive.
In short, we need the EU more than the EU need us. What a dilemma.