Post-Brexit Trade Survival: Looking Beyond the European Union

Abstract

The UK is struggling to maintain a powerful global position against a backdrop of the British public having a longstanding difficulty in appreciating the benefits of EU membership. The success of the ‘leave’ EU campaign has created huge uncertainty over future ties with the EU. The Trans-Atlantic Trade and Investment Partnership (TTIP) offers an opportunity to be part of one of the mega-regional blocks. On the other hand, the UK may attempt to compensate for losses in the EU markets by signing deals with the US or Commonwealth countries. This paper adopts a structural gravity approach to evaluate five scenarios, based on different assumptions regarding Brexit, TTIP and various free trade deals. We estimate the highest UK welfare losses, approximately 3.1%, if the TTIP comes into force alongside the UK withdrawal from the EU. Negotiating free trade agreements with the US or the largest Commonwealth countries cannot compensate for these losses.

Keywords: Transatlantic Trade and Investment Partnership, Brexit, Gravity, UK, EU

JEL Classification: F13, F15, F17