By Alen Mulabdic, Analyst, Trade and Competitiveness Global Practice, World Bank, Alberto Osnago, Trade Policy Analyst, WTO, and Michele Ruta, Lead Economist, Trade and Competitiveness Global Practice of the World Bank. Originally published at VoxEU.
The British government and the EU face a difficult negotiation over the terms of Brexit. This column uses new data on the content of trade agreements to assess the trade impact of Brexit, identifying a tradeoff between the depth of the post-Brexit agreement and the intensity of future UK-EU trade. A ‘harder’ Brexit may have a stronger negative impact on the UK’s services trade and supply chain integration, which have relied more on the depth of the EU. This tradeoff will likely delimit future policy choices.
What will be the impact of Brexit on UK-EU trade? A problem researchers face in addressing this question is the lack of systematic information on the content of trade agreements, which makes it difficult to precisely assess the impact that a set of common rules have on trade flows.
A way around this problem is to make assumptions on how different scenarios will lower trade costs (Dinghra et al. 2016) or to use dummies to identify trade agreements that have diverse content (Baier et al. 2008, 2014). In a recent paper, we take a different approach and use new information on the content of trade agreements to assess the impact of Brexit on goods, services, and value added trade (Mulabdic et al. 2017). Specifically, we augment a standard gravity model to quantify the effect that the ‘depth’ of EU agreements had on UK trade and then use the estimates from this analysis to evaluate the future of UK-EU trade relations under different post-Brexit scenarios.
Deep Agreements
The landscape of trade and trade agreements has radically changed in the last 25 years. First, we have seen a surge in the number of preferential arrangements from 51 in 1990 to 279 in 2015. In addition, modern trade agreements are increasingly ‘deeper’ in the sense that they cover many regulatory issues and policy areas that go beyond tariffs such as services, investment, competition, and intellectual property rights protection.
Along with the change in trade institutions, the nature of trade has also dramatically changed since the early 1990s, particularly as a result of the growing internationalisation of production and the rise of global value chains (GVCs). The letter sent by the Japanese government to the UK and the EU in the aftermath of the June referendum outlining a number of requests by Japanese businesses operating in the UK on the content of a future UK-EU trade agreement illustrates the importance of a finer understanding of what Brexit entails, beyond a focus on changes in tariffs and gross goods trade flows.
The EU has been a precursor of deep integration. We use new information on the content of trade agreements from the World Bank (Hofmann et al. 2017) to build a measure of ‘depth’ based on the number of provisions covered by the agreement. The data indicate that the EU is the deepest trade agreement among the 279 currently in force covering 44 policy areas ranging from standards to movements of capital, to labour mobility (Figure 1).1
Figure 1 Average depth of trade agreements, 2015
Note: The figure shows the average depth of all the agreements signed by a country weighted by the number of partners.
Trade Impact of EU Membership
We first investigate the extent to which the depth of the EU contributed to boosting UK trade. We use data from the World Input Output Database (WIOD) on goods, services and value added trade and the World Bank data on the content of deep agreements to estimate a gravity equation augmented with a measure of depth for the period 1995-2011. By interacting the depth of trade agreements with dummies identifying the UK, we can quantify the effect of common trade rules on UK imports and exports of goods, services and value added.
Deep trade agreements are found to increase goods, services and value added trade -this impact has been even stronger for the UK (Figure 2). In particular, the depth of UK’s trade agreements strongly increased trade in services: as a result of its EU membership, UK services trade more than doubled. EU membership also increased domestic value added in gross exports of the UK and boosted its integration in global value chains: UK intermediates’ value added in gross exports (forward linkages) increased by 31%, while foreign value added in UK exports (backward linkages) increased by 37%.
Figure 2 Trade impacts of deep agreements
Note: The estimator is PPML. All specifications include bilateral fixed effects and country-time fixed effects. 90% Confidence intervals are constructed using robust standard errors, clustered by country-pair.
Hard versus Soft Disintegration
We then analyse the impact that Brexit can have on UK-EU trade relations going forward. We consider three distinct scenarios, with decreasing depth of the post-Brexit agreement between the UK and the rest of the EU. The first scenario is a ‘soft’ Brexit, assuming that the post-Brexit arrangement between the UK and the EU will be as deep as the agreement the EU has with Norway. In the second scenario, the UK and the EU will sign an agreement as deep as the average agreement the EU currently has with third countries. Finally, the third scenario has no agreement at all.
We find that bilateral UK-EU trade declines under all scenarios and that this drop is sharper the lower the depth of the post-Brexit arrangement relative to the depth of the EU agreement. In terms of value added trade, the decline ranges from 6% under the ‘softer’ Brexit scenario to 28% under the ‘harder’ scenario. The largest declines are for UK services and GVC trade (backward and forward linkages). Table 1 offers a summary of results. These predictions should be seen as average effects – an initial weak response is not a sign that bilateral trade will not change much. As it takes time for trade flows to respond to changes in trade costs, we expect the impact in the short run to be smaller than in the longer term.
Table 1 Changes in the UK’s bilateral trade with the EU under different scenarios
Notes: Depth decreases from 44 to 36 in the “Norway” scenario, to 14 in the “average PTA”, and to 0 in the “no-agreement” scenario.
Conclusions
The data point to a tradeoff between the depth of trade agreements and trade intensity. Reasons might be that deep agreements influence trade relations directly, as with services commitments that guarantee market access to the members, or indirectly as with investment, competition, and other deep provisions that make it easier to operate economic activities that span multiple borders.
This tradeoff will likely delimit future policy choices. Policymakers can either choose to undertake more binding commitments in deep agreements (a ‘soft’ Brexit) that will support more trade integration, or opt for weaker commitments (‘hard’ Brexit) and less trade. Our analysis also indicates that a shallower agreement may have a stronger negative impact on the UK’s services and GVC trade, which have relied more on the deep arrangements of the EU.
Many questions on the future of UK-EU trade relations remain open. First, the analysis does not account for the possibility that after Brexit, the UK may choose to sign new trade agreements with other trade partners, and for the EU continuing its process of “ever closer union” by further deepening its integration. How these divergent processes would impact UK-EU trade going forward is difficult to predict.
Finally, while our focus has been on the complementarity between deep trade institutions and trade flows, it could be argued that a high level of trade integration requires some form of political integration (Brou and Ruta 2008, Campos et al. 2015). Indeed, this complementarity between economic and political integration has been at the core of the European project (Padoa-Schioppa 1999). It is possible that the deepest forms of agreement may be difficult to sustain outside the Union.
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Thank you, Lambert.
Just a few observations:
It was reported this morning that the Foreign Office will soon begin informal talks with the WTO’s 163 members about the UK’s accession. One wonders what, to just pluck a couple from the air, Argentina and Zimbabwe will make of that and extract from the UK.
Further to the above, to be frank, there are not many UK government officials and probably no ministers who can grasp that detail. I have worked with them on trade finance, off shore RMB and market access matters. The officials are often too young and inexperienced and rarely have this technical background. The ministers certainly don’t and don’t care either.
There are experts in academia and sometimes the City. Unfortunately, many are not UK nationals. The UK government is not keen to use such expertise and prefers playing to the gallery.
Last, but not least, Michael Gove (the one who bowed to Trump last week) said that the British people had had enough of experts.
The Director-General of the WTO said firmly, multiple times before the Brexit vote, that no WTO talks would begin until the UK was out of the EU. Given how detailed trade discussions are, informal talks don’t get you far. “Informal talks” may well mean, “The UK is talking and the WTO is saying nothing.”
The WTO also made clear it is negotiating other trade deals and will not prioritize the UK.
Thank you, Yves. Yes, I was aware of that. Needless to say, this sort of thing gets little coverage in the UK. Lamy was on a week or so ago and go little coverage.
Oh, but for the ad hominem rule here! As a teacher and engineer by training, I just love it when someone up front and center says: “I haven’t done my homework. I don’t even know I have homework.”.
Well, researchers… why not try to understand how trade deals are implemented, in detail. Don’t need to know them all, just get a big picture on the names and numbers of countries linked to the UK by trade, the areas under a trade agreement (which industries and sub-industries in those areas are specifically linked to a specific trade agreement), then exam what looks like a representative implementation for a representative company. If you want, you could chose a big, medium, and small company to interview the pertinent people (try the billing and shipping departments, for a start) to see what differences exist, based on company size. In other words, do your homework and stop BSing.
Really, Col. S., I’m afraid you are correct that the UK doesn’t seem to have anyone who cares to even try to understand details.
Yawn! Still pushing the anti BREXIT line I see. When you have to dig up fossils from the WTO and the world bank you are getting desperate..
Are China in The EU? No, yet most people have just unwrapped their Christians presents a month ago to reveal most of their goods with made in China on them. Are the US in the EU? No, yet Europe Is drenched in US corporations from Google to Apple to Macdonalds to Ford to Microsoft to Kentucky Chicken joints.
The UK is happy to trade with German car companies and French Champagne makers and cheese makers and Italian shoe companies and Portugal fruit growers. The only people who want to get in the way are the unelected neo liberals in The EU who want to strip nation states of their sovereignty and create a new state called the EU. These scum bags will happily sacrifice German car workers, and French cheese makers, to punish the British for wanting to escape from their federal prison.
Your new president gets this thankfully unlike the old president who threatened us if we didn’t stay in Europe. As Trump has said today there is no such thing as free trade. Tariffs have fallen hugely since the the 1970s. But nations must be free to make their own deals. Otherwise the whole concept of democracy is meangingless. Which is exactly what the corporate elites desire.
Hard BREXIT is being talked about now because the EU elites have refused to consider a soft BREXIT. They just want to block and play for time. So The UK has to just get out and go their own way. I see the German car companies have said to day that a hard Brexit will have little or no effect on trade with the UK. Finally some people are seeing sense.
I love America and Americans but I do wish Americans would stop trying to push the British and other European nations into the EU. An organisation which no American politician would ever take the US because of the loss of sovereignty.
I’m sick of hearing the Tory Brexit Spin machine going on about trade. Focussing on trade alone is a sellout to mercantilist capital. It’s putting products before people. It’s enclosure, ie serfdom, by any other name.
Europe is an openness to the world. It’s freedom of movement, of ideas, and basic safeguards, protections, and rights all of the social democratic nations the modern world has adhered to. It’s access to 27 other great nations, a plethora of languages and rich cultures. It’s the ability to form families, new relationships and grow through experience and exchange abroad. It’s Erasmus and the College of Europe and third culture kids that are polyglottal, sophisticated, and look to a brighter better world. How competitive will your kids be knowing only English and not having spent a gap year in Rome like a German kid might?
This Brexit putsch is a coup, grand theft and larceny, stealing the next generations’ future for lining the pockets of crony capitalists and feudal barons. To hell with trade and race to the bottom tax evasion. Bring Britain back into the union.
Thank you.
I am not sure about the College of Europe. It has produced people like Nick Clegg and his wife Miriam Durantez Gonzalez and Helle Thorning Schmidt and her husband Stephen Kinnock, all neo-cons and neo-liberals. They may want to make Europe brighter, but not the rest of the world. Such an education, wealth and ability to explore the rest of the world seemed to confirm their (European) prejudices more than anything.
Having worked with some of them, they remind me of increasing numbers of LSE international relations graduates. They show little intellectual curiosity. Studying at these places is to tick a box and access networks. The institutions are happy to milk the students for money. One UK institution calls such students “clients”.
You’re talking about Europe 1, which is what most of us support, at least in part. But don’t forget that Erasmus, foreign exchanges, gap years abroad and so forth are strictly for the elites. Most Europeans travel abroad once a year if that, on holiday. (About 60% of the French take the holidays at home). Europe 1 is fine, in other words, if you have the money. And don’t forget that if you don’t have the money “freedom of movement” is actually a looking-glass expression that means “freedom of others to move you around.” But the real problem is with Europe 2, the Brussels edifice with (but thankfully not in) I have worked, and on which I share the opinions of the Colonel down page. And paradoxically its the activities of Europe 2 which have the most effect on peoples’ lives, often negative.
“Erasmus, foreign exchanges, gap years abroad and so forth are strictly for the elites”
This is BS.
Erasmus is for whomever wants to do it and is at university, you cant count everyone who is at university as “elite” (in the UK, for example, the percentage of youngsters that go to college is 45-50%, you can’t have an “elite” of half the population).
The word “Elite” has a meaning, but recently this word is misused in such a way that everyone I don’t simpathyze with is “elite”.
Do you have a chip on your shoulder? Your reaction is way out of line in intensity to his remark.
Sadly, if you are not a member of the privileged classes, majoring in the liberal arts (hence the reference to Erasmus), even in the UK, is a dangerous strategy because it makes you less employable. I don’t read his remark as about college students generally. He is referring to the ones who don’t have the luxury of not treating college as a trade school, as in preparation or at least signaling for a career.
The flip side of this is that no one can afford to treat college as a trade school, because there is no guarantee you’ll get a job plying your trade. Who really holds the genuinely useless degrees out there– BAs?
With all due respect, but have you ever wondered about the ‘basic safeguards, protections and rights’ of the greek people, who are currently languishing without even basic health care? Where have these safeguards gone, exactly? You make Europe sound like an idyllic utopia. Most people can’t afford to have their kids spend a ‘gap year’ in Rome. I wouldn’t be the first to say that Europe, at its monetary/fiscal heart, is a neoliberal project. I have no idea how Brexit will turn out for Britain, and my suspicion is that the poorer segments in society will be duly screwed, so it’s been a case of slow death vs fast death. And once again, just like the Trump election, it should be a wake-up call to the European ‘left’ after Blairism and similar ‘3rd way’ alternatives such as ‘New Labour’. Screw people for long enough and eventually they won’t vote for you anymore.
It’s no utopia, but it’s certainly the greatest humanist project of the last century and this side of the millenium. I’ve lived in France for 10 years and am now in the UK, and can attest that there’s a lot more access and “mixiety” than the credentialed elitist Europe 1 narrative above would lead on. There’s not a service sector job that isn’t manned (womanned) by a different accent from the diaspora. Eastern Europeans, Czechs and Poles, Baltics, sure as stereotypes would have it, but also continental Spaniards, Italians, Frenchmen, Danes, Belgians, Germans, Icelanders – you name it. Most are young, around half are students, and half are settling down and founding families. That’s not to mention small business owners: publicans, general contractors, artisans, commerçants. Now as for the professionnal class, you see the same distribution in The City, in tech, in law chambers, in media houses, in academia and research. That’s all Europe’s doing. That’s a multi-generational project that we’ce built up over 75 years, and no cynical minority government ought to be able to tear our future down with such kneejerk, flippant, luddite and reactionaty ease. Shame on leave.
F Koring, You have no idea what the EU is. The EU is now run by the neo liberals and the big banks, who wish to run everything for the big corporate Elites. Open boarders is a terrible idea, and is destroying democracy not encouraging it. You can’t just keep having millions of people pouring into Europe without restrictions. You will end up with a backlash which is what you are now getting with the rise of the far right.
Europe is not all about trade and I am not a Tory. If you bother to do some history you would learn that is was the left in the 1950s 60s and 70 s that was opposed to the EU because they saw it for what it was. A giant banker, free trade stitch up over of European countries. It was the left that forced the referendum in 1975, not the Tories. The Tories took the UK into Europe without any vote.
I love many European countries and cultures. That is exactly why I hate the EU. Because it’s trying to impose a one size fits all all over the EU against the wishes of native people. The very things you claim to love about Europe, are being destroyed by the EU. If you want diversity you need to get rid of the EU and let the people’s of Europe in their own very different countries govern themselves. The EU and single currency is a complete disaster. Look at Greece and the way democracy has been crushed by the EU/German finance ministers.
God help us if that is your model for the future. As for foreign exchanges for students. That can contine without the EU. In the 1960s my parents took me on many holidays across Europe. They had foreign students come to the UK and stay with us. The UK wasn’t in the EU then. To listen to the Europhiles you would think nobody ever moved or traded across Europe before the EU. It’s complete nonsense.
What the EU has become is an attempt to build a state. With its own currency,it’s own parlimemt, (although they have no power to make any laws) it’s own flag, it’s own court, it’s own ambassadors, it’s own regulations, and now it wants its own army. This is idocy.
This is a worthwhile debate, but see if you can check a little the natural impulse to personalize your response (“You have no idea,” “If you bother to do some history,” etc.).
No, but it’s certainly easier. Back then, it was for the priviledged. Middle class kids or kids of well travelled middle class parents who had the oportunity to make friends and contacts abroad. Trust fund kids who went to international private schools. Europe guarrantees that kind of access to all. I’ve met plenty of poor European kids here. They all have a chance. They are all full of hope. Why would anyone want to deny this to future generations?
Thank you, Sally.
I have worked in and with Brussels / EU institutions. My views about the neo-liberals, neo-cons and fantasists there are even more unprintable than yours.
However, I must part company with you on a hard Brexit. With time / a transition and industrial strategy, not the hot air and distraction from this morning, it could work, but that won’t be for many years.
And that’s the issue. The benefits/gains for the ordinary citizens of the UK – if any – are years (decades ?) away but the costs will be immediate. The “strategy” seems to involve some idea that the UK can return to the glory days of empire when the UK had no need to negotiate with these pesky foreigners since it “owned” them and they would just do as they’re told … Whoops! Oh dear we seem to have mislaid it … now what ?
More seriously the time when any kind of soft or controlled Brexit was possible is long gone. Late 80s maybe early 90s at the latest.
The problem with a soft Brezit is that the EU is not an honest broker. They see it as a mere mechanism for delaying the process until such time they can somehow change public opinion to have another referendum that the BREXIT supporters will lose. One way to encourage that is to slow down the process, scare people with endless talk of how trade will collapse, and hope the mood changes in the UK.
I believe that behind the scenes the UK govt has been negotiating for a soft BREXIT but has now realised that it is going nowhere, which is why Mrs May last week came out and talked about a hard BREXIT.
The EU want to drag this out for as long as possible because they are terrified other country’s will follow the Uks example. The EU keep trying to cut off access to the so called free market, but we import much more from Europe than we export. I believe German car companies have no desire to stop trade with the The UK.
Also we contribute £10 billion a year to the EU. Only Germany pays in more. So the longer we are kept in the more money they get from us.
In most of the analyses of Brexit I read threats from the bureaucrats of the EU and the WTO about hard Brexit or else no Brexit.
What I never hear discussed is the fact that Great Britain is one of the strongest military powers in the world who have historically not been afraid to use force(in even genocidal ways) against perceived enemies. If the EU keeps insisting on damaging the British economy as much as possible what is to stop Great Britian from if not direct military confrontation then MI6 waging a covert war against EU bureaucrats and organizations? How many divisions do the EU bureaucrats have to defend them?
Should fear of a military confrontation over Brexit be a serious concern?
In my opinion the threat of military confrontation is non-existent:
1) Uk and most of the Eu Members Are Part of Nato, have common Geopolitical Goals and a History of Cooperation. In their white Brexit paper, they reaffirming their common Security interests
2) the historical (genocidal) Britain has little to do with the current British nation.
3) The (theoretical) Military capability of the EU could be seen as the third largest in the world with France alone being comparable to Britain.
It would be against Britain Interest and Political suicidal to even move in the direction of a confrontation.
Boris Johnson (UK Foreign Sec.) recently alluding to “punishment beatings” to dissuade dissenters like UK from Brexit. Notable was the EU over-reaction to his statement as “abhorrent”. This was a frantic flag to the media – dinner is served, your narrative for today is Boris’s “abhorrence”, not the truth of his statement. I believe that the EU sees take-up of the “punishment beatings” meme as a significant PR threat.
The trick to taking a taking a caning at school in England in the old days was to never show that it hurt – always keep a stiff upper lip.
Wowsers.
1. Have you missed that Greece tried to get media interest in how badly it was being treated in the “second bailout” in 2015, had Varoufakis as a sympathetic, articulate, and telegenic presenter, got good coverage, and the Eurocrats were unmoved?
2. Have you since managed to miss that the Eurozone is presiding over a humanitarian disaster on its way to being a failed state in Greece, and they are unmoved?
3. The EU’s big priority is the EU as it should be. The UK is the one that wants out. The EU is not going to have the UK cherry-pick or get a template that it out of line with other deals they’ve negotiated. They’ve told the UK God only knows how many times. Johnson’s characterization is dishonest, period.
1. The Greeks were holding no cards. The UK has cards, e.g. corporation tax rates. The governor of the BoE (hardly a Brexiteer) recently suggested that there is more of a financial threat to the EU’s Euro/bank funding nexus than to the UK if City funding is obstructed. Not to mention German car manufacturers…
2. UK public opinion is relevant here if the UK public are to support a possible future switch to a ‘bad cop’ attitude by Theresa May. EU public opinion will come into play if we make a success of Brexit, in spite of the threats (or back down because of them). Greece is indeed an existential stain on the EU’s supposed liberal credentials. Bizarrely this supposed liberalism was the reason why many myopic remainers voted to stay.
3. What was said by the EU before the referendum needs to be taken in the context of a known propensity to engineer pro-federalist vote outcomes by any and all means available. Do you really believe that there is absolutely no motivation here to discourage other leavers?
Notwithstanding the above comments (and as a grateful reader – super blog) I may not be your only reader curious about your ideological stance regarding Brexit. Your postings are all quantitative, and fair, but uniformly anti-Brexit. May I ask about your ideology and, if its fundamentally pro federalist, as I suspect it might be, do you think that might affect the way you post on the matter? The one thing that I accept, as a Brexiteer, is that the issues are subtle and complex and that many defy quantification in GDP terms.
The corporate tax rates are a dubious card. Remember, May said (repeatedly), that she wants a fair deal for those left behind. Less regulation and lower taxes usually don’t translate well to more empowered workers. It’s nice to say how China is an export powerhouse, but few of the UK workers would like China’s workers conditions. Germany is a closer export powerhouse, but even there it was bought by the currency of (until very recently) stagnating or ever downdrifting living standards for middle classes.
I believe that not a significant Brexiter majority would be willing to put up with a significant hardship just to be rid of EU (there was an interesting poll during the Scottish referendum, which found out that a difference of about 2k GBP/year could make or break it. Unfortunately, nothing similar was done for this one). That hardship may include not just less real pay via higher inflation/weaker pound, but also things like less NHS (significant part of NHS employees are from EU. The gov’t may let them stay, but there is a lot of very nasty emotions running towards them especially in non-urban areas, so they may chose to leave anyways – especially if they took a paycut in real terms too), less social services etc. etc.
The problem with Brexit is it is an immensly complex beast. If we compare Greece’s exit out of EUR and Brexit, then assuming Greece would exit just EUR but not EU, Brexit is IMO order of magnitude if not more complex. Thus it is impossible to predict with any certainty how it’s going to end. That said, one can look at possible paths towards the end, and IMO there’s considerably more negative ones that can derail the good end than the other ones. I.e. for the good outcome many things have to fall UK’s way, and few things will suffice to derail it.
For example, it takes only a few countries to block any UK deal (see Wallonia and Canada deal), in which case UK can drop into unknown on T+2Y. And I mean unknown, as it can’t rely even on WTO rules there, which would cause a very significant damage to the UK economy (as in literally exports to EU – about 8% GDP IIRC – stop overnight, exports to other countries in doubtful state for a few months, which is enough to put a lot of businesses on, or beyond, the survival line (not to mention that it may be hard to recover the markets once lost w/o significant concessions). And it may not be even possible to blame EU as a whole for the failure, you may end up having to blame some regional assembly no-one in the UK ever heard of before.
So while I’m not going to predict how exactly it will end, I will with some degree of certainty say that a sunlit-uplands scenario is quite unlikely (not impossible, but unlikely), while some sort of bad outcome is much more likely.
Why are so many afraid of federalism? If you go by Jared Diamond, the progress of civilization has been one of gradual, greater integration in exchange for more peace and prosperity. Is it just jingoistic identiy politics? Is a Welshman any less of a person now that he’s British, or a Bretton less of a man in the French Republic and within the EU? These labels we attach identity to are distractions. What matters is economic opporunities, political and civil rights, public services, etc. As far assystems go, the EU is the best one we’ve had so far. Don’t foget it’s the first truly voluntary political supra-national union (well, Malaysia was probably the first but that didn’t last long and it was created under captive colonial institutions) that didn’t stem from coercion or in the aftermath of a civil war.
Petty elites don’t like to be told what to do. It’s the same kind of obstreperousness that animates Ayn Randian libertarianism. I’ve seen some hints that the British think they are going to put the old Empire back together. Those petty elites will be on top of the world then, right?
Thank you Lambert. The World Bank/WTO work is an interesting read. FWIW it chimes with my own calculations about expected cost to the UK of a Hard Brexit (probably circa 6% of GDP in the first few years with possibly further losses later on – this seems also to be roughly the loss the foreign exchange markets is estimating). Whether this loss comes through in the former of slower growth over a period of years or an outright recession, only time would be able to tell IMO.
The question the WB/WTO piece prompts in my mind is what if any benefit the UK might gain from trade agreements with other countries which it will be able to negotiate bilaterally if it does indeed leave the EU. It would be interesting to hear from any other commenters who have informed, thought-out views. I confess that having originally thought the UK might gain some benefit from such agreements I am becoming increasingly concerned that the net effect may in fact be negative to the UK.
Given that Trump is saying very clearly that any agreement on trade he signs must benefit the US and that, if I understand correctly, the current terms of US/UK trade are slanted in the UK’s favour, the danger must surely exist for the UK that any renegotiation will in fact be to the UK’s net disadvantage. All other countries must be expected to try to take advantage of the difficullties the UK voters have placed their country in. If the UK economy is in difficulty by 2019 the temptation for the politicians will be to sign up to agreements in a hurry to be able to claim they are taking action (this may be why they seem to be making so few obvious preparations for negotiations as they will not need many staff if the mandate is simply to accept the terms dictated to the UK by the US and others). The fact that doing so would be to the detriment of the UK in the long run is something the politicians would hope to be able to paper over for a while with assistance from the newspapers.
To those who ask if NC is biased against Brexit, I should just say I do not think so. It is IMO almost impossible for any hard-headed analysis to come to any other conclusion than that leaving the EU will damage the UK economy by taking it outside the world’s largest, most deeply integrated market-place. Hard-headed analysis, aiming for objective insights, is something NC delivers with great consistency, which is why most of us readers are here.