Brexit and its Impact on International Trade

In the world of ever-increasing globalization, global trade plays a critical role. The decisions on trade by few countries can impact the whole world. The European Union (EU) is one of the world’s largest trading blocs in the world and Brexit may lead to a huge impact on global trade including many trade deals being re-structured. First, let’s understand what Brexit is.

The Brexit Vote

In simple terms, Brexit is a combined word for “Britain + Exit” which means the exit of Britain from the European Union (EU) — a bloc made up of 27 nations. On June 23, 2016, the people in United Kingdom (UK) voted to become the first country to leave the EU, a group it had been a member of since 1973. With more than 30 million people coming out to vote, the voter turnout was 71%, clearly indicating that people were concerned over this issue. And the result was shocking and unexpected. Around 51.9% of the people voted in favor of leaving the EU against 48.1% of the voters that were against it. Prime Minister David Cameron who was heading the campaign to remain in the EU resigned the next morning as the vote ended up going against his idea of the future direction for the UK. He was replaced by Theresa May on 13 July 2016.

On 29 March 2017, the UK formally notified the EU of its intention to leave the union under Article 50 of the Lisbon Treaty, triggering the start of a 2-year window for the UK to negotiate the terms of its withdrawal from the EU.

UK formally left EU on 31st January 2020. However, it continued to trade with other countries under the bloc’s umbrella during the transition period of 11 months, scheduled to end on December 31, 2020.

EU-UK Trade Deal Signed

The European Union and the United Kingdom agreed upon the EU-UK Trade and Cooperation Agreement on December 24, 2020. The European Commission stated that the trade deal will be implemented only on a provisional basis, as there had not been time for the EU parliament to vote on it.

Why was the EU-UK Trade Deal Important?

Both UK and EU have secured a new trade deal failing which, the UK would have had to trade with EU under the basic rules set by World Trade Organization (WTO) from January 1, 2021. It is apprehended that Brexit, without a trade deal (with EU) could have crippled UK’s financial markets and would have long-term effects for its economy as UK would not have been able to access EU markets as freely as it could before.

Below are some key consequences of Brexit on International Trade and how the UK is dealing with the same:

  1. Existing Trade Agreements — When with EU, UK was automatically a part of 40 trade deals which EU had with around 70 countries. These deals provided for the elimination of tariffs on trade in most goods, and also sought to eliminate or reduce non-tariff barriers. A number of these agreements provided for free trade in services as well as goods between EU and its non-member states. So far, 29 of these existing trade deals, covering 58 countries have been rolled over by UK, which will start from January 1. 2021. The most recent trade deals were with Mexico on December 15, 2020 and Canada on December 9, 2020. These agreements will ensure that the benefits of such trade deals continue for the UK, as it starts to trade independently
  2. UK Signs New Trade Deals — Since leaving EU, UK has also signed new trade deals with many countries, in order to grow their market outside the EU. It has signed a new free trade agreement with Japan, which means that 99% of UK exports there will be free of tariffs. The total value of UK-Japan (imports and exports) was £31.6bn in 2019, according to the Department for International Trade. It is also in talks with countries that do not currently have EU trade deals, such as the US, Australia and New Zealand
  3. Hit to UK Living Standards — In the long run, Brexit may impact UK living standards. Firms may find it harder to trade with the increased customs checks at the border and different regulatory standards in the UK and the EU. This means that there will be fewer growth opportunities and the cost of living may become higher. According to research, Brexit will mean a knock to the UK economy of up to £1,300 per person under a soft Brexit, and up to £2,500 per person under a hard Brexit
  4. China — UK Bilateral relations — There are some reports that China may entice UK with trade deals and investments but would expect some concessions from UK like reversal of the recent ban on China’s access to high technology areas in UK. It would also want to re-instate Huawei’s involvement in the UK’s 5G network. China claims that expanding export opportunities in China will help UK with a faster and more sustainable recovery. However, UK and China have not signed any trade deal yet
  5. UK to Drop Tariffs on US Goods — It is being reported that UK will drop tariffs imposed on US goods when the post-Brexit transition period ends. While UK took this step to fast-track its talk with US to close a port-Brexit deal, the Biden administration is likely to put new trade agreements on hold and is rather prioritizing investments in the US economy


The trading landscape for UK is going to change a lot post Brexit. The businesses trading with UK should be updated with all the information and well-prepared, so that they can mitigate the supply chain risks and reap the benefits of the new trade deals and opportunities.

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