Brexit and British Trade: Advantages and Difficulties

In June 2016, the UK voted to leave the European Union (EU). Commonly called "Brexit," the decision has raised a number of questions regarding Britain's current trading arrangements as well as possibilities and obstacles that await the UK post-EU (Hatzigeorgiou, Lodefalk, 2016). From a trade theory and policy perspective, this paper will assess the UK's current trading arrangements along with the potential advantages and difficulties it will likely face as a result of being outside the EU.

From a mercantilist trade theory perspective, Britain's current trading arrangements are based on what is good for the EU member states (Britain formerly being one of them). It is less protectionist from a nationalist point of view and the idea that a country might import less than it exports and thereby have a trade surplus. In the EU, the UK had a 24 billion pound trade deficit at the end of the first quarter 2016 (Elliott, 2016). Mercantilism is the trade theory that flourished from the 1500s to the end of the 19th century, as countries emerged from the Middle Ages by concentrating on storing wealth gained from colonies around the world (Carpenter, 2015). Other trade theories have emerged, such as Smith's and Ricardo's theories of absolute advantage and comparative advantage (Smith, 2005; Costinot, Donaldson, 2012). However, with the rise of the market state in the 20th century and the new nationalist push now in the 21st century, the mercantilist idea can be seen below the surface of motivations: a "crisis of legitimization" has given way to protectionist concepts and a desire by leaders to reduce trade deficits (Bobbit, 2011, p. 213). The current trading arrangements of the UK with the EU do not facilitate this protectionist desire.

Those arrangements consist of the EU signing off on all trade deals first and foremost. In abiding by this transfer of authority from its own national capital to the centralized governors of the EU, the UK is given access to 1/3 of the world's markets by value and "preferential market access to over 50 countries outside the EU -- from South Africa to Colombia to South Korea" (CBI, 2016, p. 1). This is more than either Switzerland (a country with which... 1). Currently the EU negotiates tariffs for the EU member-states and as such the UK benefits from the EU's quick ability to eliminate nearly all tariffs associated with South Korea (compared to the much longer process that Australia takes in negotiating tariffs with the same country (CBI, 2016, p. 1). This type of arrangement has enabled the UK to increase trade with South Korea by nearly 60% equaling 6.3 billion pounds in exports in the year following the deal's implementation (CBI, 2016, p. 2). A similar arrangement is in place between the EU and Canada, which accounts for 1.3 billion pounds of the UK economy (CBI, 2016, p. 2). Moreover, were the UK to stay in the EU and the EU to complete all its current negotiations, nearly 90% of all trade for the UK would be covered (CBI, 2016, p. 2). These trade arrangements provide numerous incentives for Britain; the downside of these arrangements, however, is that sovereignty of the United Kingdom is not front and center and the danger of centralized forces in the EU voting for a trade deal like the TPP in years to come is a persistent threat that could seriously undermine national sovereignty by placing multi-national corporations above the rule of law in the countries where they do business.
The potential advantages of the UK leaving the EU are evident in the fact that Britain will be in a position to negotiate its own trade agreements. While these may take time, the positive side of this type of situation is that the UK is no longer represented by a foreign body but rather by its own national leaders who can put forward the type of nationalist interests that have become popular in recent years.

Thus, outside the EU, the UK hopes to take more power over its trade agreements and policies rather than have them dictated by the EU. However, as there always is in economics, a trade-off is inevitable and the other side of this move towards autonomy by Britain is the possibility of further destabilization across Europe. As Dhingra, Ottaviano and Sampson (2016) point out, the EU is Britain's "most important trade partner, accounting for half of all UK exports and imports" -- that is, 15% of the UK's GDP (p. 2). However,…