The trade effects of Brexit on the UK economy

At the heart of the EU’s powers is the control of commercial policy, that is tariffs and non-tariff barriers, including standards set so as to exclude supplies from certain other countries, notably the US, also anti-dumping duties and quotas on supplies from particular countries. UK goods prices are currently dominated by EU prices, which are higher than world prices by the percentage of trade barriers, which are estimated in our research and elsewhere at around 20% for both food and manufactures. Leaving the EU and negotiating wide Free Trade Agreements (FTAs) with non-EU suppliers so that they gain free access to our markets will bring UK prices down 20% to world levels – this, which is equivalent in its effects to unilateral free trade, will according to the GTAP model now used by the Treasury bring gains of 4% of GDP, through better prices to consumers and competition-led rises in productivity by UK producers. According to Cardiff research, the gain would be double, while simply abolishing half the EU protection would bring in the same gain. This is our preferred (cautious) assumption. However, the Treasury finds strongly negative effects of Brexit by using invalid policy assumptions and a model close to a gravity setup our research finds is rejected by UK trade facts.