The first year of Britain’s post-Brexit trade deal with the European Union was a “big shock” when imports fell by 25% compared to those from other countries, research by scientists has found.
But exports to the bloc avoided a sustained decline, with a smaller and only temporary drop compared to the rest of the world, the analysis said.
The Center for Economic Performance (CEP) at the London School of Economics and Political Science, which produced the analysis, claims it is the most comprehensive study to date on the impact of Brexit on UK-EU trade.
The research center said it found that trade between the UK and the EU remained stable after the 2016 Brexit referendum until the end of 2020 and there was no evidence that uncertainty and anticipation effects over that period led to a significant decline in the relative had traded.
However, following the introduction of the Trade and Cooperation Agreement (TCA) between the UK and the EU in early 2021, a “significant reorientation” has taken place, it said.
“While it is surprising that imports were more affected than exports in the first year of the TCA, it would be a mistake to conclude that exporters were unaffected.
“The number of export ties with the EU fell sharply in 2021,” said Rebecca Freeman, co-author of the report and CEP trade program officer.
Analysis of changes in trade patterns for 1,200 products revealed a “sharp decline” in the number of trade relationships between UK exporters and EU importers, with “lower value relationships” being hit particularly hard, according to the researchers.
CEP said the result is consistent with claims that the trade deal has caused many smaller UK companies to halt exports to the EU.
“The drop in the number of products the UK exports to its smallest European partners following the introduction of the TCA is striking.
“It seems the UK has just stopped selling a lot of products to smaller countries in the EU,” said co-author and PhD student at the University of Cambridge Thomas Prayer.
“The UK’s exit from the EU’s single market and customs union in early 2021 caused a major shock to UK-EU trade.
“We estimate that the new TCA trade relationship has resulted in a sudden and sustained 25% drop in relative UK imports from the EU,” the paper reads.
It adds: “By contrast, we find a smaller and only temporary decline in relative UK exports to the EU, but nonetheless a large and sustained decline in the extensive export spread caused by exiting low-value relationships.”
Thomas Sampson, another co-author and associate professor of economics at the LSE, said: “The Trade and Cooperation Agreement has increased the cost of trade, resulting in a drop in imports from the EU and a reduction in the number of UK traders in the EU exported products has led . These changes are making the UK a more difficult place to do business.”
Kalina Manova, co-author and Professor of Economics at UCL, said: “These results suggest that UK companies have not been hasty in adjusting their trading activities after the referendum, despite the dramatic increase in uncertainty about future UK-EU trade relations.
“However, once the effective cost of trade increased, they quickly began to reorganize their global sourcing of inputs away from the EU, while seemingly adjusting their export sales more gradually.”
The research paper, entitled Unraveling Deep Integration: UK Trade In The Wake Of Brexit, analyzes the first year of trade under the agreement and does not capture long-term effects.
A government spokesman said: “Through our export assistance service, expanded export academies and a pioneering export strategy, we ensure companies of all sizes have the support they need to trade effectively with Europe and take advantage of new opportunities as we negotiate trade deals across the world world complete world.
“Given the impact of Covid-19 on global supply chains, we have phased in import controls throughout 2022 to give businesses more time to prepare.
“Through our targeted multimedia campaign and series of industry-focused webinars, companies are also being made aware of the relevant import information and support to help them.”
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