Post-Brexit trade survival: looking beyond the European Union

Abstract

As the EU and UK negotiate a new relationship, this paper explores the welfare implications of this policy change and its interaction with major trade policy initiatives. We evaluate five Brexit scenarios, based on different assumptions regarding Brexit, TTIP and various free trade deals the UK may attempt to broker with the US or Commonwealth countries. We also consider the dynamics of welfare changes over a period of two decades. Our estimates suggest that the impact of Brexit is negative in all policy scenarios, with lower welfare losses under a soft Brexit scenario. The losses are exacerbated if TTIP comes into force, demonstrating the benefits of being a member of a large trade bloc. However, they occur gradually and can be partially compensated by signing new free trade agreements. To further minimise losses, the UK should avoid a hard Brexit.