Over the cliff edge – what would happen if exports to the EU were subject to tariffs

The continuing deterioration of relations between the British Government and the European Union has led to a renewed focus on the possibility of a hard Brexit, where all trade between the UK and the European Union would be subject to tariffs in line with WTO rules.

Previously, I had written about how Northern Ireland would bear a disproportionate cost of a hard Brexit, due to cross-border exports of dairy playing a substantial segment of the local economy. Under WTO rules, such exports can attract tariffs of 42%, which would render such trade uneconomic.

To show how a hard Brexit would impact upon Northern Ireland, I used data from the WTO’s tariffs database, and compared this with the Regional Trade Series data for 2016 published by HMRC for the 66 different product categories that they release statistics on. I used this to estimate what tariffs would have been payable if all of the UK’s exports to the EU in 2016 had have incurred tariffs in line with WTO rules.

A couple of caveats; the tariff data is highly complex, with tens of thousands of individual tariffs published for different products, so the tariff applicable for each product category is necessarily a simplified estimate. Also, were these tariffs to be introduced, the amount of trade with the EU would be expected to drop sharply, so obviously, the tariffs payable would fall as well.

Total exports from the UK to the EU in 2016 were £142.86 billion, which notionally would have attracted tariffs of £6.79 billion if such trade had incurred tariffs under WTO rules. At a total level, this would mean that exports to the EU would have incurred tariffs of 4.75%. However, due to the differences in the types of goods that are exported amongst the various parts of the UK, the impact of a hard Brexit would vary significantly.

The chart below shows the estimated tariffs that would have been levied on exports to the EU (the bars and the left hand axis), compared with EU exports as a percentage of GVA (the line and the right hand axis).

Scotland would have the lowest tariffs on exports to the EU (3.5%), due to the fact that petroleum products are such a proportionally large part of the Scottish economy, and these exports attract low tariffs. Conversely, Northern Ireland’s exports would attract the highest tariffs (7.6%), due to the high levies on agricultural and food exports, which are a proportionally large part of the Northern Ireland economy.

However, Wales and Northern Ireland would be doubly impacted by a hard Brexit, because in addition to their exports attracting the highest tariffs, exports to the EU form a larger segment of their overall economy than is the case in Scotland and England. Exports from England to the EU in 2016 totalled £107 billion, which represented 7.6% of total GVA of £1.433 trillion. By comparison, Welsh exports to the EU were worth £8.27 billion, or 14.8% of Welsh GVA.

Northern Ireland and Wales are already the two areas of the UK with the weakest economies. Northern Ireland GVA per capita was £18,584 in 2015, whilst in Wales it was £18,002. Scotland (£23,685) and England (£26,159) are already better off, yet it is Northern Ireland and Wales who would pay the biggest cost for a hard Brexit, due to the double whammy of their economies being both more exposed to the EU and their exports attracting higher levies than their English and Scottish counterparts.

The chart below shows the composition of 2016 exports to the EU by category for each of the UK areas, with the UK average WTO tariff for each product category in brackets. It shows how exports from Northern Ireland and Wales have proportionally more exports in higher bracket tariff goods than in other parts of the UK.

Of course, England is a huge and highly diverse region, and the composition of English exports will vary significantly amongst its regions. Imports of cars into the EU can attract tariffs of 10%, and so areas such as the northeast of England which export large numbers of vehicles to the EU could see significant costs from a hard Brexit as well.

If the UK goes over the cliff edge and leaves the European Union without a free trade deal, it will have severe ramifications for the entire UK economy. However, some parts of the UK will have a much heavier burden to carry than others, and it is the poorest parts of the country that have the most to lose.

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  • Korhomme

    Add to that the possibility that there will no longer be the ‘free movement of labour’, that is EU workers may be required to leave, and that there could be problems recruiting them in the future. In my area, there is a mega chicken processing plant, a large abattoir, and a lot of mushroom farming. These all depend on ‘migrant’ labour. How will they fare in the future?

  • Robin Keogh

    Thanks for putting g this together. Many of us are not up to speed with the hard figures and rely solely on media descriptions of what opportunities and/or problems exist. Some of this is of course skewed due to bias or fear mongering so it’s good to get a look at some hard likely hoods. Scary stuff.

  • Roger

    Welcome back

  • Freeborn John

    The Uk contribution to the EU budget is equivalent to a 7% tariff which is higher than all these tariffs except food / live animals. Not paying the budget contribution means the UK will be better off even if there are tariffs on our exports. Furthermore we will collect more in tariffs than we pay because of the greater volume in imports from the EU27. So there is no “cliff edge”; only a prosperous democratic future.

  • Robin Keogh

    Thank you

  • mjh

    If it’s any consolation (it isn’t) the pain may be more evenly spread than this (excellent) illustration of the effects of WTO rules suggests.

    The WTO element takes no account of the issues that Brexit creates for the service industries – which represent over 70% of the economy. The movement of finance sector jobs and business to Dublin, Paris and Frankfurt will hit London (the UK’s richest region) particularly hard. As will any meaningful restrictions on movement of labour, on which the tourism and hospitality industries are particularly dependent (particularly in London).

  • Myreve Chambers

    Love the scaremongering here it would be nice to have a Leave perective rather than all the rhetoric one way as no one really knows so it is all speculation. Perhaps it is time for the country who exports most of it produce and other exports to the U.K. tp leave the EU as well then we wouldn’t have this speculation they would know exactly what they would have to pay if anything. Do you really think that the EU will impose tariffs on the UK I have a friend who lives in Germany and the German people are afraid of their jobs especially in the car industry that they wil loss their jobs if tariffs are implemented believe me the workers and the company who export millions of euro worth of goods to the U.K. will not let that happen, the French and Spanish are the same they are not going to allow Juncker and his lackeys to stop their exports they certainly will not cut of there nose to spite their face. The UK people can get there cars from other countries as well as their wines etc. They needed us more for our large contributions to the EU than we need them for the produce. We lived without it for years we can do it again.

  • Marcus Orr

    The interesting information was that the total yearly tariff payment for the UK under WTO was 6.8 billion £, so less than the 8 billion £ net that the UK currently contributes to the EU budget. So in net terms we’re in credit.
    (May be a somewhat simplistic way of looking at things, I have to acknowledge)

  • mjh

    If only everything were so neat, John.

    But those savings that you suggest will be equivalent to a 7% tariff will never appear – unless that is that we stop the payments to farmers and cancel the infrastructure projects that a large part of that money is currently spent on.

    And if the EU stops buying some of our exports because the tariffs make them uncompetitive, how will that make the UK better off? Certainly not those made redundant as a result.

    Then again the tariffs that we will collect are not an unalloyed blessing. Someone will end up paying for them. That means you and me – because the price of all those goods will simply go up to include that cost.

    So who is it exactly who will be more prosperous?

  • Obelisk

    Ah that’s fine then. Salmon of Data will be sorry he wasted his time collating the facts and figures, he mustn’t have a pal in Germany he can ring up for a random opinion.

    Now I think several bloggers in recent months have been leave supporters. And they have come with their own facts and figures. Whether you agree with them or not is up to you but they did have a platform.

    Your own response is based on an absurd notion that the EU public are so dependent on the UK that they simply won’t allow the Eurocrats to force a bad deal on Blighty. They’ll rebel, demand the UK be treated leniently and the UK will prosper as a result.

    In other words your response is a flight of fancy rooted in British exceptionalism, this idea that Britain won’t be treated just as any other country because YOU ARE BRITAIN and they wouldn’t dare!

    I think the world has indulged Britian’s glorified self-image of itself much, much too long. Brexit is the moment the gravy train stops, and the UK has a reckoning with who and what it really is.

  • Marcus Orr

    “unless that is that we stop the payments to farmers and cancel the infrastructure projects that a large part of that money is currently spent on.”
    UK pays EU 8 billion £ net. That means the money we get back (for infrastructure, our farmers etc) has already been deducted.
    John is right, the UK net contribution is higher than the tariffs. The govt. could in my opinion undertake to pay the tariffs for our goods into EU, and maintain all subsidies to NI farmers etc and still have 1.2 billion £ left over as we are no longer financing the EU.

  • scepticacademic

    (Very)

  • lizmcneill

    And what about payments from the EU into the UK? Is Westminster going to maintain them or will it give them to its Tory heartlands?

  • scepticacademic

    1. It’s a statistic analysis of one possible scenario, so the accusation of scaremongering is nonsensical.
    2. You underestimate the likely influence of the EU institutions over the terms of any deal, and the fact all 27 countries must agree it, plus the temptation for the french and spanish to try to stick it to the UK.
    3. The “they need us more than we need them argument” is just nonsense. Just compare trade as a % of GDP in each direction.

  • scepticacademic

    What about the non-tariff barriers that will inevitably appear? Plus financial services issues like passporting.

  • lizmcneill

    Anyway, the article points out that NI will be disproportionately affected. So parts of the UK could be OK and it would still be a disaster in NI.

  • Madra Uisce

    Deluded nonsense

  • salmonofdata

    Thanks. Services are fiendishly complicated and I’m finding it really hard to get my head round it all. This blog post is a brilliant intro if you’re interested https://tradebetablog.wordpress.com/2017/04/12/eu-uk-wto-services/

  • clemsam lang

    Aren’t you deluding yourself like Jean-Claude said your PM to do?
    EU contributions are paid by the UK from taxes.

    But if the UK will have an income from tariffs, “our” European producers will have to adapt their prices – and who will be paying those higher prices ?!?
    No, NOT the UK – your entire population.
    And the working class, who can hardly AFFORD higher prices resulting from the pound’s falling, will be punished even more.

    So, all your talk about tariffs is very nice, BUT:
    Please do realize WHO will be suffering most from them!

    P.s.: on second thought – it was THEY who mostly voted LEAVE. Well, …

  • Fear Éireannach

    The payments to the EU were essentially paid for by London which produced the GDP on which they were based and the tax surplus to pay for them. London voted Remain. The tariffs will both affect industries disproportionally both in poorer parts, and NI most of all, but will also raise prices for poorer people who do not live in London.
    German car makers and makers of German products generally need not worry too much, many people buy these products precisely because they are expensive.

  • Reader

    Peter Donaghey: Total exports from the UK to the EU in 2016 were £142.86 billion, which notionally would have attracted tariffs of £6.79 billion if such trade had incurred tariffs under WTO rules
    So the annual cost of paying WTO tariffs for trade with the EU is less than the net contributions made by the UK to the EU to trade without tariffs?
    Thanks, that was useful work.
    [Edit] I referred to the “net” contribution. Note the word “net”. This is not the same as the “gross” contribution, which is the combined total of the net contribution, the rebate and the pittance we get back to be spent on projects and subsidies as the EU commands.

  • Reader

    lizmcneill: And what about payments from the EU into the UK?
    Marcus said “net”, so these are already taken into account.

  • Reader

    Korhomme: In my area, there is a mega chicken processing plant, a large abattoir, and a lot of mushroom farming. These all depend on ‘migrant’ labour. How will they fare in the future?
    If they find it impossible to recruit local labour, they would be able to request work permits for immigrant labour. However, these seem to be the sort of places that might find it difficult to export food products to the EU. In which case the EU tariffs will cost the jobs of EU migrants.

  • Reader

    mjh: But those savings that you suggest will be equivalent to a 7% tariff
    will never appear – unless that is that we stop the payments to farmers
    and cancel the infrastructure projects that a large part of that money
    is currently spent on.

    I believe that John was referring to the NET UK contribution. We only get a small fraction of the GROSS contribution back as subsidies and projects.

  • Reader

    Fear Éireannach: German car makers and makers of German products generally need not worry too much, many people buy these products precisely because they are expensive.
    Then they would have already put the prices up, wouldn’t they? Audis and BMWs may be desirable, but they aren’t Veblen Goods.

  • salmonofdata

    It’s not the UK government that would pay the tariffs, it would be the importers in the EU. In any case, the analysis doesn’t include the impact of non tariff barriers to trade in goods, which could be substantial. And it doesn’t cover trade in services at all.

  • Reader

    clemsam lang: and who will be paying those higher prices ?!?
    No, NOT the UK – your entire population.

    Quite right. That’s part of the moral argument for free trade. Likewise, if the EU put tariffs on imports, it is the EU population that pays the extra, for the benefit of the EU treasuries.
    That’s why, right now, and in spite of the agricultural subsidies, the EU population is paying more for food than it should.

  • doopa

    ‘In which case the EU tariffs will cost the jobs of EU migrants’

    I think they will displace the jobs back to the EU. The cost will be to the UK.

  • Fear Éireannach

    They are not necessarily Veblen Goods, but the elasticity of demand might be quite different than UK exports, for instance Nissan cars are a commodity and bought only on price. My point is that a significant proportion of goods bought from within the EU are not currently the cheapest available and a small increase in price may not hugely affect demand.

  • Korhomme

    The worry is this: unable to recruit labour to do these jobs, the processors will be unable to work. And that will feed back along their supply chains.

  • Gopher

    Look at the disposable income after the UK, Germany and France within the EU it falls of a cliff. Scandis and Dutchies dont count as their population is fractional. If Germany and France want to get into a tarriff war, that will get interesting very quickly.

  • NotNowJohnny

    That’s a whopping £20 per person a year or 6p per person a day. You wonder why we didn’t leave before this. Can we not just leave now and forget all that negotiating lark. The sooner we get out the sooner we get to reap the benefits.

  • Michael64

    “The govt. could in my opinion undertake to pay the tariffs for our goods into EU, and maintain all subsidies to NI farmers etc and still have 1.2 billion £ left over as we are no longer financing the EU”
    While sounding like a good idea this is illegal under WTO rules and would allow EU to penalize UK further through increased duties.

  • Michael64

    Well as the duties put on the products will lead to less trade (demand being influenced by price) there will be losses all around. The EU will end up buying much less from UK and UK from EU.

  • Brian O’Neill

    You are forgetting BMW also make the Mini which is a mid market brand.

  • Michael64

    As stated above this is not how WTO rules work, and the duties that will be put in place (presumably by both sides) will lead to less trade and all parties will be poorer.

  • BMW have announced they will make the electric Mini in Germany, not Oxford (yes there is car manufacturing in SE England).

  • SeaanUiNeill

    A delight to be agreeing with you on something for once, Roger.

  • hgreen

    Are you aware of the huge flaw in your argument?

  • Gopher

    Airbus will be in an interesting position Im not sure how tarrifs will work there? Then there is HMGs ability to tailor tax to offset tarrifs something 455 million disparate souls in a single currency will find it impossible to do. Final assembly in that scenario will likely remain in the EU but I would not guarantee design nor component manufacture. Inteligence in the free world will always coalesce around a low tax regime.

  • Michael64

    See that is the only way UK can without running afoul of WTO rules can offset tariffs, but importantly it is money that the UK in this way is paying UK producers so they can offer products cheaper before tax to EU consumers. And hence it ends up being the UK taxpayer paying the tariffs EU consumers ought to pay while UK consumers presumably will pay any tariffs imposed by UK. Now it may make sense economically but I wonder how the electorate will respond. Also EU has indicated they would not accept it (though I’m not sure what exactly EU would do about it).

  • Michael64

    Those rules have to be quite special (e.g. not apply only to exporters but to a whole sector of the economy like areoplane wing producers) not to run afoul of WTO rules that prohibit government sponsorship of exports.

  • Gopher

    There are many taxes and twenty ways to skin a cat

  • Michael64

    Well yes though it may be difficult I’m sure UK will be able to think up a way to do it (that is actually one of the drawbacks of relying on WTO) – but how do you think the electorate will like that the UK taxpayer under that scheme actually ends up paying both the import and the export tariffs?

  • Robin Keogh

    Ah thanks Sean

  • Ryan A

    Are you for real? Tory Jeff has been banging his drum about our bright future outside the Single market for months on end on this site.

    Let me spell it out very clearly. EU companies might lose 60m potential customers. UK companies might lose 450m potential customers. Who will come off worse? This ‘You need us more than we need you’ might hold true in certain industries but for the most part it’s nonsense, as Carlo Collenda explained how it works to our dear Boris.

    Don’t worry though. We’ll have automatic re-entry to the EU when the time comes and the constitutional status quo becomes untenable. Even faster if we let you negotiate Myreve!

    I for one will stick with french wine and german cars in the interim.

  • It’s very hard to replicate what you have in London. Milk on the other hand is a low value/low margin commodity. London will retain it’s wealth relative to NI following a hard Brexit.

  • People won’t eat less in two years time, in essence the UK will lose those jobs to the EU or NI will lose them to the mainland UK. Both are a lose outcome for NI.

  • Brendan Heading

    Love the scaremongering here it would be nice to have a Leave perective rather than all the rhetoric one way as no one really knows so it is all speculation.

    Peter has provided projections based on data, which he willingly concedes may be inaccurate but are based upon the information which is available.

    I’ve yet to see any of the brexit supporters provide any such data or do any kind of economic modelling.

    Do you really think that the EU will impose tariffs on the UK I have a friend who lives in Germany and the German people are afraid of their jobs especially in the car industry

    The old “the German car industry will do the job for Blighty” trope is a reminder that brexit supporters have no grasp on the complexity of the deal they are facing.

    The German car industry will not suffer because of brexit. The price of German cars will simply rise. Sure, some British carbuyers will switch to brands that are manufactured inside the UK, such as Toyota, Honda, Nissan and the locally made Mini. But it is plainly obvious that your badge-conscientious BMW, Mercedes or Audi driver is not going to switch to a Nissan just because the price went up.

    They needed us more for our large contributions to the EU than we need them for the produce. We lived without it for years we can do it again.

    The UK will absolutely do just fine outside of the EU. It will have a lower standard of living due to goods being more expensive, and as a result it will probably have higher unemployment and higher taxes, just like it did back in the 1970s. But yes – the sky will not fall in.

  • Brendan Heading

    If someone were to put a price on the right of the UK financial services sector to operate within the EU, I’d hazard a guess that it would be somewhat larger than £1.2bn. And that’s just one sector.

  • lizmcneill

    And what’s to stop Theresa and co diverting them from NI to some region that might vote Tory?

  • SeaanUiNeill

    Good to see you back, and looking forward to your comments on the current run up period to re-unification!

  • Suzanne Hill

    Interesting figures, although you have not looked at trade coming the other way, do not forget that trade is a 2-way street. According to the AHDB http://beefandlamb.ahdb.org.uk/markets/industry-reports/uk-statistics The UK currently exports 16,197 tonnes of beef & lamb to the EU. However it also IMPORTS 36,467 tonnes of beef & lamb from other EU countries. Each of these EU countries will also have to pay the import tariff into the UK which works in both directions, both for exporters and importers. This means that UK beef & lamb suppliers will now have a substantial price advantage over these EU suppliers. This therefore represents an additional opportunity of 36,467 tonnes of beef & lamb that the UK has to source from somewhere. This is a huge opportunity for UK beef & lamb producers to capture a larger percentage of the UK market in the interim. If I were a company in the beef & lamb industry right now, I would be out proactively hustling for this additional business, having conversations with major UK supermarkets & other customers, talking to them about what production capacity I had and helping the buyers to secure their future supply chains by increasing the number of UK suppliers they buy from. Forget ‘no-one knows what’s going to happen so we’ll just wait and see’ – forget that, there is an excellent window of opportunity for these companies right now, until we leave the EU to aggressively & proactively grab market share in the UK. Brexit for these companies is a massive opportunity.

  • cj

    Maybe if the local industries pays locals a decent wage it would attract more locals to the jobs.

  • Skibo

    Retaining London’s wealth relative to NI will be of little comfort if London loses a sizeable amount of European banking business. Remember that London is the cash cow of the economy. Any cold that London catches will result in a fever over the rest of the UK in relation to the amount of services the country can provide.

  • Skibo

    It is not just the wages.Young people are not partial to manual labour.
    The other issue is the percentage cost of the labour on the goods, will they then be cost effective to sell. I would suggest it is more liable to work the other way with the increased cost of tariffs resulting in less wages can be paid and more immigrant labour from third world countries having to be sourced.
    Not really what Brexiters would have wanted.

  • Skibo

    Along with the inflation rate rising with prices, interest rates will rise also. It was difficult getting a mortgage before. Lord knows what it will be like after.

  • Skibo

    Suzanne the issue for agriculture in the UK is when imports into the UK is used as barter for the UK to export goods and services into other countries. Do not be surprised if the gates are lowered for the reintroduction of Brazilian beef with the reduction in legislation and a more cost effective New Zealand and Australian lamb. Poultry blast frozen from Brazil and Argentina.

  • Skibo

    The nett EU bill for the UK was in the region of £11.1B according to Boris. Not sure where you get the figure of £14.8B.

  • Suzanne Hill

    Agreed, although agriculture & food are key sectors for most countries, which is why the tariffs are normally higher than in other industries, and one of the most contentious industries to negotiate lower tariffs in as a consequence. I don’t think that because the UK is leaving the EU necessarily means that food standards will drop. The UK will stipulate its own food standards, which any company wanting to export to the UK will have to adhere to. I agree with your point though. I think this is why UK companies, including those in Northern Ireland have to really up their game in the next 18 months, as they have a window of opportunity to grab market share and establish their supply to new customers within the UK, before other markets have the opportunity to supply. They also need to put a big focus on business improvement to stay ahead of the game in the light of global competition. This will also allow them to be better equipped to seek out new export markets and be able to be more competitive. It is a sector where the consumer also holds a large say in where their food is coming from. UK / Northern Irish producers need to really emphasise the stringent tracking from farm to supermarket that is the norm here, via their marketing – overseas customers will also buy in to this quality ethos. Brazil currently has a huge problem with the provenance of its meat, so I think if other countries want to compete they will need to operate to the same standard as UK producers.

  • Marcus Orr

    Don’t know where you get £14.8B bill either. I gave you 2 numbers:
    -(minus) £ 8 billion net CREDIT – that’s the total amount paid into the EU by UK every year MINUS all the credits we get back (including farmers, infrastructure, etc)
    and £ 6.8 billion (that’s a bill alright) was the total named by the kind expert who performed this analysis here – how much would UK be liable in tariffs if there is no deal and the UK & EU revert to WTO trading.
    Total £1.2 billion per year UK in credit. (i.e. we’re making money).

  • Robin Keogh

    Fingers crossed, 🙂

  • Skibo

    I agree in part with what you say. My issue is that a number of people sold Brexit to the masses on the issue of legislation and red tape. They led people to believe that legislation could be reduced and it could, if you no longer want to trade with the EU. If you do, then you must continue to recognise the EU legislation.
    What happens then? Do you have two standards, one for export to the EU and another for internal and export outside the EU?
    Will we allow growth hormone beef from the USA in?
    How will the agriculture industry in the North adapt? Less direct support will require higher prices or economy of size to drive the overheads down. Will we lose more of our small family farms and part-time farmers?
    If we continually look to the UK as our market, we will continue to stagnate as we have done so since 1938. Ireland has progressed by looking past the UK to foreign investment and foreign trade and we need to do the same. Whether we can do that successfully as part of the UK, I am not so sure. There is no payoff for any party in power in the UK to try and promote the North.

  • SeaanUiNeill

    I have very few doubts Robin! But Unionism quit unexpectedly destroyed that very sane Third Home Rule Bill whose passing was created with jubilant bonfires in 1914, but which alas withered under Unionist intransigence. However, I can scarcely believe if majorities in north and south vote to end the scandal of partition we will again somehow find a resentful Unionism stymying the natural trajectory of reunification. Even Lord Craigavon himself said to the local Civil Service mandarin G.C. Duggan in 1937 “Duggan, you know that in this island we cannot live always separated from one another.We are too small to be apart, for the border to be there for all time.” To my mind only WWII delayed the disintegration of NI before this.

  • Robin Keogh

    Indeed The loyalty of the sons of Ulster to the crown and De Valera’s missteps did a lot to shore up the union in the post war years.

  • Fear Éireannach

    What proportion of that manufacturing has EU inputs?

  • cj

    Young people not partial to manual labour?? What planet you on who you think does most manual labour jobs in the world it’s the youth cos they have the physicality for it . Greed is the problem.

  • Skibo

    No cj what I am saying is that as the older generation are retiring there is no generation coming behind them to replace them in manual labour. There is this impression that a university degree will guarantee you a well paid management type job. Unfortunately the pyramid of jobs means there are not enough of them around.