Explainer | Why No Deal is bad economics

The business world and the majority of MPs have devoted lots of media time in warning of the danger of a No Deal Brexit despite this a significant minority still want a No Deal Brexit.

In fact, according to a YouGov poll are 43% against a delay to Brexit with just 38% in favour of a delay despite the fact not getting an extension would most likely result in No Deal. Support for a No Deal currently stands at 28%. Most Brexiteers do not fear No Deal, while some actively welcome it. But for those who hoped for economic prosperity outside the EU No deal will any such hope.

Warnings of the economy being £900 million worse off in 2019 alone and thousands of companies fleeing to European shores may look like scaremongering to Brexiteers but simply they’re not. The fact they are readily dismissed shows a problem with the nation’s mindset as well as its media.

The problem? Most the population don’t understand macroeconomics. Trade policy and tariffs are alien to them as brain surgery. With education the average citizen can understand the dangers of No Deal, rather than simply being told them by an ever misleading media.

Lets start by establishing how reliant we are on the EU for trade. Trade with the EU amounts to 44% of all UK exports and 53% of all UK imports. Total trade with the EU amounts to £615 billion, and ending our single market access also means losing access to markets such as Norway’s and Switzerland’s who are also in the EEA as well as favourable trading relationships with Canada, Ukraine and Turkey.

The main implication of leaving the single market and customs unions is the introduction of tariffs on trade. A tariff is a tax on an import or an export and currently, we pay no tariffs when exporting or importing to the EU.

Tariffs will hurt UK businesses who sell things in Europe. To keep making the same profit they made previously companies would have to up their prices. This makes their goods less competitive and lowers their income. You might expect this means only countries that trade in tariff heavy goods in the EU will be affected but that is not the case.

Everything is connected to everything else, in economics I’m that is the global fear right at the moment

John Clarke

While they will be affected most, which is why manufacturing companies like Airbus and JLR are particularly worried, their problems will affect the whole economy as less spending from these companies creates circles of decline. It’s worse still for companies that ship goods around the EU as goods are slowly built such as engines.

We are already seeing economic damage and we haven’t even spoken about our own tariffs.

Leaving the EU means putting up tariffs with Europe. WTO rules mean we cannot give preferential treatment to any nation without signing free trade agreements, which we won’t have any of. We are able to lower our tariffs and this supposedly will decrease prices back home.

However, there are two problems with this. As mentioned most of our trade is with the EU and will be with the EU for many decades to come. The simple reason for this is geography. Therefore, there can be no improvement in the trade relationship for half our trade. Dropping tariffs for the other half might have benefits to consumer in the UK but we must be careful. British farmers can’t compete with American agriculture. British steelworkers can’t compete with Chinese steel. Dropping tariffs risks huge industries at home. The EU might be painted as a protectionist bloc but it’s not really the truth. In comparison to the USA, the EU has lower tariffs on manufacturing and minerals and broadly similar tariffs on agriculture, metals and chemicals. It has some protectionist tariffs but that is to be expected of a developed economy. If we hope to get some economic benefit off lower tariffs it will be minimal and will not mitigate the economic damage already discussed.

In honesty to head for a No Deal and drop our tariffs would be a perverse injustice of the referendum result. The result was a strong backlash against globalisation and to say the will of the people is more globalisation does not fit the result.

Tariffs will cause problems for trading in goods but non tariff barriers will also hurt the UK’s service economy which again is reliant on EU trade. The lack of regulatory alignment will hurt trade with the EU and again cause a drop in profits for British businesses.

The result of a No Deal, economic pain. Not exactly the land of milk and honey that was the previous vision of Brexit Britain. We can leave the EU without serious economic damage but we must be clever and we must get a trade deal.



Written by The People's News management team

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