Brexit and British Trade: Advantages and Difficulties

Introduction: Brexit and the Trade Question

In June 2016, the UK voted to leave the European Union (EU). Commonly called "Brexit," the decision raised a number of questions regarding Britain's current trading arrangements as well as the possibilities and obstacles that await the UK outside the EU (Hatzigeorgiou & Lodefalk, 2016). From a trade theory and policy perspective, this paper assesses 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 trading arrangements within the EU were based on what is good for member states collectively rather than for the UK specifically. The arrangement is less protectionist from a nationalist standpoint and diverges from the mercantilist idea that a country should export more than it imports in order to maintain a trade surplus. Within the EU, the UK ran a £24 billion trade deficit at the end of the first quarter of 2016 (Elliott, 2016).

Mercantilism is the trade theory that flourished from the 1500s through 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 since emerged, including Adam Smith's theory of absolute advantage and David Ricardo's theory of comparative advantage (Smith, 2005; Costinot & Donaldson, 2012). However, with the rise of the market state in the 20th century and the renewed nationalist push of the 21st century, mercantilist ideas can still be seen beneath the surface of political 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 UK's trading arrangements within the EU did not facilitate this protectionist desire.

UK Trading Arrangements Within the EU

Within the EU, all trade deals are negotiated at the supranational level. By transferring this authority from its own national government to the centralized governance of the EU, the UK gained access to one-third 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 access exceeded what either Switzerland or Canada — countries frequently cited as models for a post-Brexit UK — had achieved on their own (CBI, 2016, p. 1).

As part of this arrangement, the EU negotiates tariffs on behalf of all member states. As a result, the UK benefited from the EU's capacity to eliminate nearly all tariffs associated with South Korea far more quickly than individual countries such as Australia could manage through bilateral negotiations (CBI, 2016, p. 1). This type of arrangement enabled the UK to increase trade with South Korea by nearly 60%, equaling £6.3 billion in exports in the year following the deal's implementation (CBI, 2016, p. 2). A similar arrangement between the EU and Canada accounted for £1.3 billion of the UK economy (CBI, 2016, p. 2). Moreover, had the UK remained in the EU and the EU completed all its current negotiations, nearly 90% of all UK trade would have been covered (CBI, 2016, p. 2).

These trade arrangements provided numerous incentives for Britain. The downside, however, was that the sovereignty of the United Kingdom was not the primary concern, and the danger of centralized EU forces voting for agreements — such as deals resembling the Trans-Pacific Partnership — posed a persistent threat that could seriously undermine national sovereignty by placing multinational corporations above the rule of law in the countries where they do business.

Potential Advantages of Leaving the EU

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 this process may take time, the positive side of this type of situation is that the UK will no longer be represented by a foreign body but rather by its own national leaders, who can advance the nationalist interests that have become increasingly popular in recent years.

Outside the EU, the UK aims to take greater control over its trade agreements and policies rather than having them dictated by Brussels. However, as is always the case in economics, a trade-off is inevitable. The other side of this move toward autonomy 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). Nevertheless, with the European economy struggling and nationalism rising in many countries — from the United States to Italy, the Netherlands, Russia, the Philippines, and France — there is a major economic incentive to adopt a policy that is, to some degree, mercantilist-protectionist while, to another degree, based on mutually beneficial terms that enable both sides of the trading table to prosper (Pabst, 2010). The zero-sum game played by world powers over the past century has not ended well — debt is at historically unprecedented levels for many nations — and a new approach is deemed necessary by those rejecting the current system.

Conclusion

Brexit offers a new perspective on global trade and economic policy — not just for the UK but for all countries engaging in trade. The EU offered a centralized approach to trade that allowed it to clear several hurdles that take individual countries longer to clear; however, it also meant that the UK had to abide by policies adopted by the EU and surrender a degree of its sovereignty in the process. Essentially, leaving the EU places the UK in a better position to negotiate on its own behalf — and other countries are observing this dynamic as well. The need to work with the EU as a negotiating partner therefore becomes less pressing over time, particularly as the threat of a domino effect is felt and other EU member states consider departure.

The rise of the multipolar world — wherein a positive-sum game is open to all countries willing to cooperate — becomes appealing to nations that seek to maintain their own autonomy, sovereignty, and nationalist interests while simultaneously engaging in exchanges that are beneficial to both sides of the table. How successfully the UK navigates this balance will define its economic identity for a generation.

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