Introduction
In 2016, the citizens of the United Kingdom (UK) voted in favour of leaving the European Union (EU) with a slight majority of 51.9%. As a result, new trade regulations governing UK-EU trade became necessary. Since Brexit, UK-EU trade relations have been governed by the Trade and Cooperation Agreement (TCA), a free trade and cooperation agreement that provides zero tariffs and quotas on goods and services.
According to academic studies, although the TCA has had a positive impact on exports and imports between the UK and certain EU countries at the bilateral level, it has not improved the UK’s trade with the EU, foreign investment inflows, and overall trade performance at the aggregate level due to the introduction of new trade barriers, higher costs, and increased regulatory burdens. However, unlike in the case of the EU, the overall impact of Brexit on the UK’s trade with non-EU countries appears to have been beneficial. Empirical evidence suggests that the UK’s aggregate trade volume with non-EU countries has been expanding since Brexit.
Consequently, I argue that even though Brexit has been partially beneficial to the UK’s trade with non-EU countries, its overall impact on UK-EU trade and the UK’s aggregate trade performance has been largely detrimental. In this article, I examine how Brexit has affected British trade by analysing firstly how UK-EU trade has been shaped through the TCA, and secondly how the UK’s trade with non-EU countries and foreign investors has evolved in the years since Brexit.
Brexit and UK-EU Trade: Bilateral Gains, Aggregate Losses
It is important to note that even though the Brexit vote happened in 2016, there was no change in trade rules until 2021. Following the implementation of the TCA in January 2021, trade rules between the UK and the EU changed significantly. Looking at the overall impact of Brexit on UK imports from the EU, it is clear that while Brexit reduced imports from many EU countries, imports from Malta increased by 17.70%, while imports from Latvia and Slovakia rose by 43.62% and 15.49%, respectively. These findings indicate that Brexit reshaped rather than uniformly reduced UK import patterns, generating gains for some trading partners despite an overall decline of 19.35% in UK imports from the EU as a whole.
Similarly, UK exports to certain EU member states, including Latvia, Slovakia, and Lithuania, increased by 34.31%, 47.55%, and 48.29%, respectively. However, despite these increases, overall UK exports to the EU declined by 12.98%. Several studies argue that cross-border trade in goods and services between the UK and the EU has become more costly following the UK’s withdrawal from the EU’s free-movement framework.
Therefore, one could argue that even though the TCA established a new trade framework between the UK and the EU, it did not eliminate regulatory changes and potential misalignment between the two parties. Overall, the evidence suggests that the TCA has mitigated some of the disruption caused by Brexit but has not restored UK-EU trade to its pre-Brexit trajectory.
Beyond the EU: Expanding Non-EU Trade and Investment Challenges
While Brexit reduced the UK’s trade with the EU, trade with non-EU countries generally moved in the opposite direction. The overall Brexit effect appears to have increased UK imports from non-EU countries by 23.99% and UK exports to non-EU countries by 14.91%. The largest gains were observed in imports from Albania (+86.82%), Israel (+70.06%) and Russia (+55.89%), and in exports to Hong Kong (+61.12%), Turkey (+51.29%) and Japan (+32.98%). These trends suggest a partial reorientation of UK trade towards non-EU markets following Brexit.
Even though Brexit has produced positive outcomes in the UK’s trade with non-EU countries, its overall impact on the UK’s trade performance remains largely negative. As a result of the Brexit process, UK investment has fallen by 6% to 8%, while productivity has declined by 3% to 4%. The Financial Times reports that some UK subsidiaries of multinational engineering and electronics firms have struggled to persuade their parent companies to invest in the UK since Brexit.
BMW, for instance, decided to relocate electric Mini production from Oxford to China by the end of 2023, a move that intensified concerns about the UK’s post-Brexit investment environment. Moreover, the estimated loss of 20-42% of product varieties since Brexit has raised long-term concerns about the UK’s future export performance and productivity. These findings suggest that Brexit has reduced the attractiveness of the UK as a destination for foreign investment and increased concerns about the country’s long-term productivity and export competitiveness. This reflects broader concerns about the long-term competitiveness and resilience of the UK economy.
Conclusion
To sum up, Brexit has profoundly reshaped the UK’s trade relations both with the EU and with the wider global economy. The evidence examined in this article shows that Brexit has generated positive trade outcomes for some non-EU countries and a small number of EU member states. However, its overall effect on UK-EU trade and foreign investment has been predominantly negative. After Brexit, even despite the TCA, trading between the UK and the EU has become more costly and administratively burdensome than before. At the same time, the UK’s attractiveness to international investors appears weaker than it was before Brexit. Some multinational companies appear increasingly reluctant to expand their operations and investments in the UK. Overall, the findings indicate that reducing regulatory uncertainty and improving investor confidence will be essential if the UK seeks to strengthen its trade performance in the years ahead.
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