Brexit Trade Impacts: Alternative Scenarios

This note develops four alternative estimates of the trade-related impacts of the United Kingdom seceding from the European Union. We contrast an exit that re-sets the UK’s relationship with the rest of the EU to a WTO-rules most favoured nation basis (“Brexit”) with a negotiated change in the UK’s status that largely preserves the UK’s integration with the rest of the EU at a level similar to that of the European Free Trade Association (“Brefta”). While these two scenarios model the EU disaggregated into sixteen regions, a third scenario shows the implications for outcomes of modelling the Brexit scenario treating the rest of the EU (EU27) on an aggregated basis, where we introduce a “single market” effect that reflects EU27 preference for EU27 products. A fourth scenario introduces a UK free trade agreement with the United States in the context of the TTIP not going ahead, which reflects the emerging political economy of trans-Atlantic trade relations.