Ross Clark

The EU would be mad to start a trade war with Britain. Here’s why

The EU would be mad to start a trade war with Britain. Here's why
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So far, the debate over what happens to UK-EU trade after Brexit has been conducted around a rather odd premise: that the EU will be out to punish Britain by cutting us off unless we sign up for continued membership of the single market, with free movement of people and contributions to the EU budget. Certainly, this is the impression which many EU leaders have been keen to create, and one which the 'Remain' lobby is more than happy to promulgate.

Yet it sits rather uneasily with reality. As the Leave campaign consistently pointed out before the referendum, the EU would be mad to start a trade war because the rest of the EU sells more to us than we sell to the rest of the EU. Today, Civitas publishes a report which calculates just how much British and EU exporters would lose out if – this being the worst-case scenario – post-Brexit Britain and the EU resort to trading under World Trade Organisation (WTO) rules.  

Assuming there was no change in what was traded across the English Channel – which obviously wouldn’t be the case as consumers would start to shop around elsewhere – UK exporters would, under WTO ‘Most Favoured Nation’ (MFN) rules, find themselves paying £5.2 billion in tariffs on goods they exported to the rest of the EU. EU exporters, however, would end up paying £12.9 billion worth in tariffs on goods they exported to Britain.

Germany, not surprisingly, would be the biggest net loser: its exporters would pay £3.4 billion in tariffs, compared with the £0.9 billion worth of tariffs paid by UK exporters selling to Germany. France, too, would be a big loser, not least due to the higher tariffs allowed for agricultural goods under MFN rules. French exporters to the UK would pay £1.4 billion in tariffs, compared with £700 million paid by UK exporters to France.

Of 27 EU countries, only five – Croatia, Cyprus, Estonia, Finland and Malta – would find themselves as net ‘winners’  - I put that in inverted commas because in a trade war there are not really winners – we all lose.

As for industries, the European car industry would be hardest-hit. EU exporters would pay £3.9 billion in tariffs, compared with £1.3 billion paid by UK exporters. We keep hearing of how UK-based manufacturers would relocate to the remaining EU in order to avoid tariffs. If there is a car factory which sells more cars across the Channel than it does in Britain that would make sense. But the net effect would be to give manufacturers an incentive to relocate from the EU to Britain – in order to be able to continue to access the huge UK market tariff-free.

No-one should lick their lips at the prospect of EU exporters suffering from a trade war. It would be a thoroughly backwards step if free trade between Britain and the EU were to end. But the Civitas figures are a reminder that the EU’s tough stance is almost certainly just bluster. EU exporters have a huge incentive to ensure that trade continues.