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Home » Blogs » Think Tank » COVID Has Clouded Brexit's Effect on Global Trade, Research Shows

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COVID Has Clouded Brexit's Effect on Global Trade, Research Shows

U.K. Port
Photo: Bloomberg
August 22, 2021
Dana Bodnar, SCB Contributor

Compounded with the economic effects brought on by the global pandemic, Brexit has made a lasting impact on the U.K. economy and will continue to create a sense of prolonged uncertainty with trade between the U.K. and the EU. As global trade recovers amid the worldwide vaccination rollout and slow easing of lockdown restrictions, the impact of Brexit will become more apparent.

Research shows U.K. trade with the EU has fallen nearly a fifth (-18.8%) since 2018, while trade with the world has contracted 14.2%. Continued uncertainty, supply chain adjustment and non-tariff barriers drive this decline.

Troubled Performance

While it is nearly impossible to discern the effects on trade due to the pandemic from those due to Brexit, comparing U.K. trade with the EU to U.K. trade with the rest of the world, shows a significant difference in overall performance. This suggests that the non-tariff barriers to trade as a result of Brexit have only been amplified by COVID-19 effects. As the world continues to recover from the pandemic, we will get a clearer picture of the impact of Brexit on the U.K. economy. The deepening labor shortages in the U.K. are having the largest impact on the U.K. economy. This is a direct result of Brexit but has been exacerbated by COVID-19.

Brexit has introduced a slew of new restrictions and requirements for trade between the U.K. and EU. New licensing requirements, border checks and regulatory customs requirements have increased the cost of trade between the U.K. and EU. Not only this, but rules of origin requirements have created further headaches due to the difficulty in proving origin of components within large cross-border supply chains. European industries dependent on trade with the U.K., like food and financial services sectors, are also affected by border disruptions and non-tariff barriers in the forms of increased paperwork and higher regulatory uncertainty. 

Since 2020 data is flooded with primarily COVID-19 noise, by comparing data to 2018 (pre-Brexit volatility), there are significant economic trends that have only accelerated in 2020. Also, comparing U.K. trade with the EU versus the rest of the world shows notably worse trade performance.

Global Impact

This higher trade friction between the U.K. and EU causes shifting supply chains within Europe. There is limited evidence of the impact of Brexit across the globe, and it is especially difficult to distinguish with COVID-19 in the mix. However, this might be an opportunity for some countries to secure better trade relationships. The negative impacts on the U.K. economy are much more apparent than benefits and demonstrate the severe impact of political uncertainty on an economy. This may offer a cautionary tale to other Eurosceptic countries, especially in contrast to a country like Greece whose trade with the EU has risen 16% since 2018 and whose economic growth exceeds the EU average.

As more months of data are available, we’ll begin to see a clearer picture of the impact of Brexit on the U.K. economy, beyond the one-off effects of COVID-19.

The introduction of trade barriers, such as increased paperwork, higher haulage costs and export bans limit prospects for external recovery. This also limits the attractiveness of the U.K. for investment, limiting their competitive advantage in global trade opportunities. Their domestic recovery will be limited by the restrictions on free movement of people, exacerbating the effect of increasing labor shortages amidst both COVID-19 and Brexit.  

More conclusions can be drawn once more data post-Covid is available, but for the time being, Brexit poses tremendous challenges to EU and U.K. trade. Time will only tell, but this trade relationship must overcome several obstacles before there is any degree of stability.

Dana Bodnar is a senior economist at Atradius, a global trade credit insurer. 

Compounded with the economic effects brought on by the global pandemic, Brexit has made a lasting impact on the U.K. economy and will continue to create a sense of prolonged uncertainty with trade between the U.K. and the EU. As global trade recovers amid the worldwide vaccination rollout and slow easing of lockdown restrictions, the impact of Brexit will become more apparent.

Research shows U.K. trade with the EU has fallen nearly a fifth (-18.8%) since 2018, while trade with the world has contracted 14.2%. Continued uncertainty, supply chain adjustment and non-tariff barriers drive this decline.

Troubled Performance

While it is nearly impossible to discern the effects on trade due to the pandemic from those due to Brexit, comparing U.K. trade with the EU to U.K. trade with the rest of the world, shows a significant difference in overall performance. This suggests that the non-tariff barriers to trade as a result of Brexit have only been amplified by COVID-19 effects. As the world continues to recover from the pandemic, we will get a clearer picture of the impact of Brexit on the U.K. economy. The deepening labor shortages in the U.K. are having the largest impact on the U.K. economy. This is a direct result of Brexit but has been exacerbated by COVID-19.

Brexit has introduced a slew of new restrictions and requirements for trade between the U.K. and EU. New licensing requirements, border checks and regulatory customs requirements have increased the cost of trade between the U.K. and EU. Not only this, but rules of origin requirements have created further headaches due to the difficulty in proving origin of components within large cross-border supply chains. European industries dependent on trade with the U.K., like food and financial services sectors, are also affected by border disruptions and non-tariff barriers in the forms of increased paperwork and higher regulatory uncertainty. 

Since 2020 data is flooded with primarily COVID-19 noise, by comparing data to 2018 (pre-Brexit volatility), there are significant economic trends that have only accelerated in 2020. Also, comparing U.K. trade with the EU versus the rest of the world shows notably worse trade performance.

Global Impact

This higher trade friction between the U.K. and EU causes shifting supply chains within Europe. There is limited evidence of the impact of Brexit across the globe, and it is especially difficult to distinguish with COVID-19 in the mix. However, this might be an opportunity for some countries to secure better trade relationships. The negative impacts on the U.K. economy are much more apparent than benefits and demonstrate the severe impact of political uncertainty on an economy. This may offer a cautionary tale to other Eurosceptic countries, especially in contrast to a country like Greece whose trade with the EU has risen 16% since 2018 and whose economic growth exceeds the EU average.

As more months of data are available, we’ll begin to see a clearer picture of the impact of Brexit on the U.K. economy, beyond the one-off effects of COVID-19.

The introduction of trade barriers, such as increased paperwork, higher haulage costs and export bans limit prospects for external recovery. This also limits the attractiveness of the U.K. for investment, limiting their competitive advantage in global trade opportunities. Their domestic recovery will be limited by the restrictions on free movement of people, exacerbating the effect of increasing labor shortages amidst both COVID-19 and Brexit.  

More conclusions can be drawn once more data post-Covid is available, but for the time being, Brexit poses tremendous challenges to EU and U.K. trade. Time will only tell, but this trade relationship must overcome several obstacles before there is any degree of stability.

Dana Bodnar is an economist at Atradius, a global trade credit insurer. 

Global Trade & Economics

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