How has Brexit impacted international trade in 2021?
Following the end of the Brexit transition period on 31st December 2020, the future of international trade remains an ongoing concern. Uncertainty within Brexit trade rules has caused disruptions between UK/EU imports and exports, which has resulted in empty supermarket shelves.
Here we examine the advantages and disadvantages of international trade post-Brexit and the outlook for 2021.
How will Brexit positively impact international trade?
The main argument for Brexit was that the UK now has the freedom to trade as it sees fit by making deals based on the domestic economic requirements of the nation, not that of the EU member states.
Post-Brexit, many leave campaigners advocated that the UK would benefit financially, as there would be no more membership payments or bailouts, and that the nation’s prosperity would flourish if it were no longer subjected to the red tape of Brussels.
There appear to be more stumbling blocks than initially anticipated with regard to international trade, however, we are still in the early days of post-Brexit as businesses continue to navigate through the new regulations.
How could Brexit negatively impact international trade?
Contrary to the views of leave campaigners, some economists have argued that UK businesses will suffer outside the EU. They believe that Britain could lose the power, influence and leverage it has enjoyed over the years as other nations would put the EU before the UK. Doing business with a collective of 27 countries is, after all, more beneficial than doing business with just one country.
The UK’s Super Power allies and trading partners want a more robust, closer Europe; so, could Brexit mean an end to the special relationship with America? The current and former president, as well as the president-elect all have contrary opinions on the issue.
Barack Obama certainly didn’t think Brexit was a wise move when he was in the White House. It seemed that in terms of trade, there would be no more preferential treatment. Obama’s view was that Britain breaking away from the EU would cause the country to go to the back of the queue regarding US trade deals.
Trump, on the other hand, believed Brexit is a good thing, continually making supportive statements regarding the US/UK trade relationship. Contrary to Obama’s comments, national security adviser, John Bolton, stated that the UK would be at the ‘front of the trade queue’. Whether the US sticks to these promises, however, remains to be seen.
US President, Joe Biden, made it clear that he was opposed to the idea of Brexit which has cast a shadow over the future of the trade deal between the UK and the US.
China has also made supportive Brexit statements, saying it would respect the decision made by the British people. However, Beijing is wary of the implications of Brexit as it could have a damaging effect on the strength of the unity of countries it regards as an essential counterbalance against the mighty US.
What became incredibly clear is that most, if not all, trade agreements, would have to be reviewed and re-negotiated. According to the Global Counsel, Britain will find itself severely dependent on relationships with its ex-partners (other EU member states).
How has Brexit impacted the British Pound?
Ongoing Brexit trade negotiations during 2020 saw the British pound (GBP) fluctuate continuously against the euro (EUR) following conflicting headlines regarding the possibility of the UK reaching a trade deal with the EU.
Economists forecast that a no-deal Brexit would have caused a significant decline in the British pound to euro (GBP/EUR) exchange rate. With a last-minute trade deal being struck on Christmas Eve, the British pound (GBP) has slowly edged higher against the euro (EUR), with the British pound to euro (GBP/EUR) exchange rate currently standing at EUR 1.14, having reached as low as EUR 1.08 back in September.
It’s forecast that British pound (GBP) sentiment will continue to improve during 2021, largely down to vaccine developments and the potential easing of coronavirus lockdown restrictions sooner than anticipated.
Forecast for UK exports to the EU in 2021
Studies have indicated that the UK exports to the EU could drop by a third as a result of the new Brexit trade deal. The London School of Economics has forecast that UK Prime Minister, Boris Johnson’s, hard Brexit trade deal will cause UK trade to reduce by 13%.
It’s predicted that the services sector will encounter some issues in 2021. The study reveals that the services sector accounted for around one-third of UK-EU trade in 2019 and that the increase in trade costs is likely to be even larger going forward.