New research has revealed the significant impact of leaving the European Union's customs union on UK exports, with a decline of 12% in goods exports to the EU since the Brexit transition period ended. The study, conducted by the Centre for Economic Performance at the London School of Economics, highlights the detrimental effects of increased trade barriers and paperwork on British businesses.
Key Findings of the Research
The analysis shows that the UK's departure from the single market and customs union has led to a 12% drop in goods exports to the EU, equivalent to approximately £20 billion. The research attributes this decline to new customs declarations, health checks, and other non-tariff barriers that have increased the cost and complexity of exporting.
Small and medium-sized enterprises (SMEs) have been disproportionately affected, with many struggling to adapt to the new requirements. The study also found that the UK's export performance to non-EU countries has not compensated for the losses in the EU market.
Impact on Different Sectors
The research highlights that sectors such as food and drink, chemicals, and machinery have experienced the most significant declines. For example, food exports to the EU have fallen by 25%, while chemical exports have dropped by 15%. The automotive sector has also been hit hard, with a 14% decrease in exports.
In contrast, services exports have shown more resilience, but the overall trade picture remains negative. The study notes that the UK's trade with the EU has become less diversified, with a concentration in a smaller number of products.
Policy Implications
The findings have reignited the debate over the UK's post-Brexit trade arrangements. Some economists argue that the UK should seek a closer relationship with the EU, such as joining a customs union or single market, to reduce trade friction. Others emphasize the need to focus on new trade deals with faster-growing economies outside Europe.
The government has responded by highlighting the opportunities from new trade agreements, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and the benefits of regulatory divergence. However, the research suggests that the short-term costs of leaving the EU's customs union have been substantial.
Business Reactions
Business groups have expressed concern over the findings. The Confederation of British Industry (CBI) called for urgent measures to reduce trade barriers, including mutual recognition of professional qualifications and simplified customs procedures. The Federation of Small Businesses (FSB) urged the government to provide more support for SMEs to navigate the new trade environment.
Many companies have reported increased administrative burdens, with some choosing to stop exporting to the EU altogether. The research indicates that the number of UK exporters to the EU has fallen by 10% since the end of the transition period.
Long-Term Outlook
The study warns that the negative impact on exports could persist in the long term if trade barriers remain high. It suggests that the UK needs to invest in trade facilitation and digital customs systems to reduce costs. Additionally, building stronger trade links with non-EU countries could help offset some of the losses, but this will take time.
The research concludes that the full effects of Brexit on trade are still unfolding, and further analysis is needed to understand the long-term implications for the UK economy.
