FEATURE WHO BEARS THE BREXIT BRUNT? Who bears the Brexit brunt?


With only months until the UK leaves the EU, Brexit negotiations are reaching a climax. There remains, however, a considerable degree of uncertainty about how UK trade policy may change after Brexit. By Agnes Norris Keiller, Institute for Fiscal Studies


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HILE THE GOVERNMENT has stated it wishes trade between the UK and the EU to remain “as frictionless as possible”, it also aims


to eventually leave both the Customs Union and the Single Market. Leaving these institutions will almost inevitably make it harder for firms in the UK to both import from, and export to, the EU. What has so far been less clear is exactly where in the economy such impediments to trade are likely to have the greatest impacts.


Recent research carried out at the Institute for


Fiscal Studies has examined in detail how different industries could be affected by potential trade barriers between the UK and the EU and which types of workers are most at risk of negative impacts.


Increased barriers to trade


with the EU would have a negative impact on the economy as a whole According to this research, increased barriers


to trade with the EU would have a negative impact on the economy as a whole, but these impacts will also vary greatly across different industries. If the UK were to leave the EU Customs Union, manufacturers of transport equipment (including car manufacturing), of chemicals and pharmaceuticals and of clothing are likely to


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Fraction employed in very highly exposed industries under a ‘No Deal’ trade policy scenario, by sex and education


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experience the largest negative impacts on their value added (the value of output minus the cost of production inputs) across a range of trade policy scenarios. If the UK were to leave the EU without a trade deal, for example, increases in trade barriers would expose these industries to estimated reductions in their value added of between 15% and 20%. These effects are more than seven times greater than the estimated negative impact of trade barriers on the economy as a whole. Negative impacts in these industries would be less severe if the UK stayed within the European Economic Area, but they would still be exposed to falls in value added of between 4% and 7%. Clothing, transport equipment and chemical and pharmaceutical manufacturers are particularly exposed to negative impacts for three reasons. First, around 25% to 30% of the inputs used in these industries are imported from the EU. A UK car manufacturer may for example import engines from Germany and bumpers from Eastern Europe. Second, around 25% to 40% of output in these industries is sold to the EU. As a result, reductions in demand from European consumers as imports from the UK become more expensive would have a relatively large negative impact on demand for these industries. Finally, the trade barriers affecting these sectors are expected to be greater than in other sectors. This could for example be because delays caused by customs checks are particularly costly for “just-in-time” manufacturing methods, which are common in the car industry. In combination these facts suggest increases in input costs and falls in demand due to trade barriers are


28 SOCIETY NOW WINTER 2018


All Women: All GCSEs or less


Degree or higher A Levels


GCSEs or less Men: All


Degree or higher A Levels


Percent


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