The Brexit transition deadline is rapidly approaching and the window for a post-Brexit trade deal is closing fast. At the beginning of 2020, just before the pandemic hit, the UK left the EU with the Withdrawal Agreement, which sets out how the country will exit the union, but not the terms of the relationship going forward. This means that the new relationship needs to be negotiated, with trade deal terms attracting the most attention among many areas of the divorcing process, which comes as no surprise given how many aspects of the economic reality will be affected by it.
Impact on trade
As the UK's largest trade partner, the EU is accounting for around half of its trade. If the UK leaves without a trade deal, it could cost the country more than the pandemic. A recent study found that in the long-run, Brexit – even if followed by a trade deal – would decrease UK's GDP by 3.1% and exports by 6.3% compared to a scenario where the UK remained in the EU. However, without a trade deal, the cost would increase to 3.9% of GDP. By leaving the EU, the UK left trade agreements, including the single market and customs union, which were the foundation of the member countries' relationship. The single market agreement means that countries share the same rules on product standards and access to services, while the customs union allows goods to travel among EU countries without border checks and taxes (tariffs). Without these or any other agreement in place, British goods exported to EU countries will be subject to tariffs, which will make them more expensive relative to domestic European tariff-free goods. However, there are also non-tariff barriers to trade to consider. They include a wide range of factors that raise trade costs, including border controls, dealing with different regulations, rules of origin checks, etc.Click here to learn more.