A Brexit Hysteresis-Exercise: Relevant Bottom Lines and Prospective Price-Sensitivity Patterns in Current EU-UK Trade and Traffic Flows

Abstract

In a period of sluggish economic growth, the Brexit saga adds additional uncertainty to trade issues, concluding half a century of troubled EU-UK experience. In the post-Brexit era, the UK will be the third external EU_27 partner after the USA and China. Especially inbound trade (from the UK to the continent) is bound to suffer from price-sensitivity effects if tariff-related barriers are activated. The dominant outbound leg to the UK shows more variety in the trade basket, but it remains doubtful whether the visible trade with the continent will reach a better balance, relative to services. This paper also assesses the automotive value chain (cars versus components) in order to add multi-national logistics as well. The period of observation since the June 23rd vote in 2016 is too short for empirical evidence on economic hysteresis in the trade-creation-trade-diversion paradigm. Yet, some indications of trade deflection are detected in a sequence of numerical steps. They suggest still speculative Brexit effects in the transition period over the next decade, including an impending hysteresis pattern of which the first signs are evidenced. This ground research offers an empirical scheme for a future statistical follow up of this interplay between trade and sovereignty.

JEL classification :F11, F13, F15