The Economic Impacts of Post-Brexit Trade Options

Lead Research Organisation: Institute for Fiscal Studies
Department Name: IFS Research Team

Abstract

The UK's exit from the European Union presents policymakers with an unprecedented set of challenges, risks and opportunities. Perhaps nowhere are these more significant than in the decisions that the UK will have to make with regard to its future trade policy. It now appears increasingly likely that the UK will end up leaving both the European single market and the Customs Union. This will give the UK the ability to sign its own trade deals, but will undoubtedly pose many problems for those industries and regions of the UK for whom trade with the EU is important. Further steps towards liberalisation with third countries will also likely create both winners and losers.
We propose a detailed programme of research with the aim of understanding how new trade arrangements for the UK might affect different industries, regions and workers. We also propose to synthesise existing research on how policy can ease the burden of adjustment associated with potential future trade shocks, which we will discuss in the context of our empirical findings. Our research team is well-placed to do this: drawing together experts on the economics of international trade, labour markets, and the UK's current policy environment.
We plan to firstly document the exact nature of the UK's current trade patterns with the EU and the rest of the world. To do this we will draw on the World Input-Output Database (WIOD). This provides information not only on gross trade flows between the UK and different countries, but also on how inputs from different source countries are used by UK industries. This will enable us to paint a detailed picture of the UK's involvement in both global and European value chains. Much of the current public debate on the importance of UK trade with other countries focuses narrowly on the share of UK imports or exports to or from different countries. This however ignores the importance that imported inputs might have for some industries. Our analysis of UK industries will explicitly account for this and thus provide a more complete picture of the role of trade in the UK economy.
We will then make use of detailed administrative data on firms to describe the proportions of workers employed in different industries at a high degree of geographic disaggregation. Using this data in conjunction with the WIOD tables, we will be able to quantify the extent to which workers in different regions are potentially exposed to changes in the trade environment because the industries and regions they work in export to, use inputs from, or compete with imports from various different countries or trade blocs.
To understand the extent to which greater exposure to trade shocks actually leads to longer-lasting economic impacts on affected workers or regions, we will examine the labour market effects associated with two historic trade shocks. The particular shocks we will examine are the impressive growth of imports from China and the accession of Eastern European countries that occurred over the last two decades; we will also explore the possibility of using other policy reforms. This analysis will be backward-looking. However, we will do it with the aim of understanding the possible impacts of (analogous) trade shocks that might arise if the UK took further steps towards trade liberalisation with relatively low-wage economies in the future.
Finally, drawing on our results from the previous exercises, we will undertake a review of possible regional and labour market policies aimed at easing the burden of adjustment for those adversely affected by trade shocks. We will discuss these in the context of the UK's existing policy instruments and measures, including possible replacements for the EU's regional development funds that may occur post-Brexit.
Together these four different research strands will allow us to paint a detailed picture of the economic and social consequences of the UK's post-Brexit trade options.

Planned Impact

Our work has the potential to have an important impact on the trade-policy debate in the coming years. We intend to maximise this impact in several ways, drawing on the IFS's extensive experience in this area.

Outputs: We will write up our findings in the form of two IFS reports and two academic working papers. These outputs will be accompanied by non-technical summaries of our main findings that will be made available on the IFS website, and will be press-released using the IFS's exhaustive list of press contacts. We will also make use of the IFS large and growing presence on social media platforms such as Twitter. In addition, we will be prepared to respond in real-time to developments in the discussion of trade policy as they unfold using blog posts ('observations') as and when our work allows us to make useful and informed contributions to the debate.

Steering Committee: In order to best understand and respond to the priorities of possible consumers of our research, at the onset of the work we will assemble a steering committee/advisory group. We will invite civil servants from relevant departments, those working for devolved administrations alongside representatives from business and industry. The committee will meet at several stages during the project, including at the beginning to discuss our initial research plan.

Website tools: We will summarise many of our results on the regional distribution of different industries and their trading relationships with other countries using heat maps. These are likely to be amenable to online dissemination. To this end we will create clickable maps of the UK for our website that will allow users to summarise the particular statistics of our choice. In addition, we propose to provide an online tabulation tool that will allow users to see the contributions of imported inputs to the UK for the industries of their choice (e.g. cars, telecommunications, pharmaceuticals and so on). This will neatly illustrate UK industries involvement in both global and European supply chains in an accessible way. The IFS has prior experience with such tools, including one which allows individuals to see their own position in the income distribution.

Launch events: Due to the regional focus of our work, we propose to hold two outreach events in different parts of the UK, in addition to a launch event in London (which we have budgeted to be live-streamed). These events will be tailored to their local audiences. We will present our general findings alongside information that is more specific to the locations we are visiting (giving for example more detail on local industry composition).

Video: We have budgeted to produce a short, partially animated video that will describe our key results on both the UK's involvement in UK and European value chains, and the importance of exporting and potentially import-competing industries in different UK regions. The IFS has prior experience with this. A similar video made by the IFS in conjunction with the consulting firm Econ Films now has over 4,500 views on Youtube.
 
Description Our research uncovered a number of interesting findings:
• We used the World-Input Output Database to calculate the importance of EU value chains for UK trade (both in terms of imported inputs and the role of UK exporters in supplying EU firms that may export elsewhere). These results and their policy implications were written up in an article for the journal Fiscal Studies. Our findings have direct relevance for those involved in designing the UK's post-Brexit trade policy as they show the implications of UK-EU trade barriers for trade with third countries.
• We showed how to extend measures of workers' regional exposure to trade shocks to allow for input-output links across industries. Past studies of the impacts of trade on regions have not incorporated input-output links but we show them to be highly important. This work should be relevant interested in understanding the exposure of different regions to trade shocks, and will be useful for ex-post assessments of any changes in trade barriers following Brexit.
• In an IFS Green Budget chapter aimed at policymakers and the public, we used these methods to show that low-educated men were the most exposed to new trade barriers with the EU (with particular concentrations in the West Midlands and Northern Ireland).
• We showed that rich households do not purchase more imported food (as a proportion of their budgets) than poor households with implications for the distributional impacts of new tariff barriers. Other work also illustrated the scale of likely benefits to consumer prices from unilateral tariff liberalisation (which turned out to be small).
• Our work on worker responses to previous trade "shocks" (in particular rising imports from China) showed how workers were more likely to remain in/move into low-skilled occupations and how spouses responded to shocks affecting their partners by moving into employment. This work should be relevant for policymakers designing measures to assist those displaced by trade shocks.
We also developed new skills as part of the project. Levell spent time at the University of Groningen for a week to learn from experts on the use of the World Input Output Database and input-output analysis. Levell and Norris Keiller greatly improved their knowledge of the literature on trade and labour markets over the course of the project.

As part of the project, we constructed cross-walks from trade products codes to industry codes, allowing us to see how industries are affected by changes in imports/tariffs. We have also produced measures of the exposure of different regions and industries to increases in Chinese imports. These will be useful for subsequent research and we have already shared some of these resources with other researchers.

In addition we wrote numerous blog posts and articles drawing on our research findings: these include articles for the UK in a Changing Europe, Prospect Magazine, the BBC and the Women's Budget group.
Exploitation Route As part of the project we calculated measures of exposure to increased Chinese import competition measures which we and other researchers will be able to use to examine the impact of trade shocks on other outcomes. We have also established some key baseline results and exposure measures that will allow us to investigate the impact of any new Brexit-related trade barriers on the UK labour market. This provides us and others with an firm basis for future work in this area.
Sectors Government, Democracy and Justice

URL https://www.ifs.org.uk/research_areas/198
 
Description This work - on the economic impact of post-Brexit trade impacts - has potential for high impact. This is an active area for current policymaking and the subject has attracted large amounts of public interest. The research findings we have so far released have been widely reported in the media. Our work on the exposure of different workers to new post-Brexit trade barriers was reported in all major national newspapers. Researchers involved in the project were interviewed on the Today programme and on other flagship programmes such as Newsnight. Many of the blog pieces written on our work for the UK in a Changing Europe initiative were also widely read, discussed and shared on social-media. Our work has feed directly into the policy-making process. Our work on the exposure of different regions to post-Brexit trade barriers was cited in the government's widely discussed report EU Exist: Long-term Economic Analysis (https://www.gov.uk/government/publications/exiting-the-european-union-publications). Our work on the consumer price impacts on post-Brexit tariff reductions was also cited in the Office for Budget Responsibility's October 2018 publication "Brexit and the OBR's forecasts" (https://obr.uk/docs/dlm_uploads/BrexitDiscussionWebVersion.pdf). An event presenting findings from our work was attended by 120 people including civil servants, business representatives and journalists and the associated video viewed 100's more times on youtube after the event. We fully expect impacts from the project to continue after its completion. For example, ongoing work that looks at measuring the exposure different workers and local labour markets to Brexit in the context of a more sophisticated model will likely be of considerable interest. We also continue to work on the labour market impacts of past trade-shocks (including the surge in imports from China in the early 2000s). This work should of direct relevance to policymakers considering the UK's future trade and policy and designing policies to best realise the gains from trade.
First Year Of Impact 2018
Sector Government, Democracy and Justice
Impact Types Economic,Policy & public services

 
Description Appearance as expert for London Assembly Economy Committee discussing Brexit
Geographic Reach Local/Municipal/Regional 
Policy Influence Type Membership of a guideline committee
Impact IFS researcher, Peter Levell, was an expert witness for the London Assembly Economy Committee discussing "The impacts of Brexit upon London's economy" alongside other experts from academia and civil society. The event was held at city hall.
 
Description Working Group, expert panel, dialogue: economics roundtable for London
Geographic Reach Local/Municipal/Regional 
Policy Influence Type Participation in a advisory committee
 
Description Working group, expert panel, dialogue: customs union
Geographic Reach Local/Municipal/Regional 
Policy Influence Type Gave evidence to a government review
 
Description Visiting the University of Groningen 
Organisation University of Groningen
Country Netherlands 
Sector Academic/University 
PI Contribution Learnt how to use the World Input Output Database to calculate useful trade statistics.
Collaborator Contribution Taught me how to use the World Input Output Database.
Impact n/a
Start Year 2017
 
Description A Brexit dividend to spend on the NHS? 
Form Of Engagement Activity Engagement focused website, blog or social media channel
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Other audiences
Results and Impact Observations on A 'Brexit Dividend' to spend on the NHS?
Year(s) Of Engagement Activity 2018
URL https://www.ifs.org.uk/publications/10354
 
Description Brexit, Work and Women 
Form Of Engagement Activity Engagement focused website, blog or social media channel
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Public/other audiences
Results and Impact A guest blog for the Women's Budget Group blog by Agnes Norris Keiller
Year(s) Of Engagement Activity 2018
URL https://wbg.org.uk/blog/guest-blog-brexit-work-women/
 
Description Customs union briefing 
Form Of Engagement Activity A formal working group, expert panel or dialogue
Part Of Official Scheme? No
Geographic Reach Regional
Primary Audience Public/other audiences
Results and Impact Peter Levell participated in a panel discussion with the UK in a Changing Europe on the Customs Union and discussed issues around the Customs Union with other UK in a Changing Europe researchers. The audience were largely media.
Year(s) Of Engagement Activity 2018
 
Description DIT workshop on Brexit related research 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Policymakers/politicians
Results and Impact Presented at an ESRC event at DIT explaining our Brexit project to civil servants and answering questions.
Year(s) Of Engagement Activity 2017
 
Description ESRC Brexit Research for Policy POST EVENT 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Policymakers/politicians
Results and Impact A presentation of our research plan on Brexit to an audience of civil servants and parliamentary researchers. We also manned a stall where flyers were given out explaining details of ongoing and past relevant IFS research. The event was held at Portcullis House, Westminster.
Year(s) Of Engagement Activity 2017
 
Description ESRC Brexit Research for Policy event 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Policymakers/politicians
Results and Impact A presentation of the project's research plan on Brexit to an audience of civil servants and parliamentary researchers by Agnes Norris Keiller and Matthias Parey. We also manned a stall where flyers were given out explaining details of ongoing and past relevant IFS research. The event was held at Portcullis House, Westminster.
Year(s) Of Engagement Activity 2017
 
Description Economics Roundtable for london 
Form Of Engagement Activity A formal working group, expert panel or dialogue
Part Of Official Scheme? No
Geographic Reach Regional
Primary Audience Policymakers/politicians
Results and Impact A round table discussion of issues related to Brexit and the London economy. I watched presentations of what other researchers were doing, talked about our own research and provided feedback on other people's.
Year(s) Of Engagement Activity 2017
 
Description Little scope for post-Brexit tariff reductions to cut consumer prices significantly 
Form Of Engagement Activity A press release, press conference or response to a media enquiry/interview
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Public/other audiences
Results and Impact IFS Press release on the impact of post-Brexit tariff reductions by Peter Levell.
Year(s) Of Engagement Activity 2018
URL https://www.ifs.org.uk/publications/12853
 
Description Newspaper article: Where is Brexit in the budget numbers? 
Form Of Engagement Activity Engagement focused website, blog or social media channel
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Other audiences
Results and Impact Article published by 'UK in a Changing Europe'.
Where is Brexit in the budget numbers?
Year(s) Of Engagement Activity 2017
URL https://www.ifs.org.uk/publications/10172
 
Description Observation: Firms' supply chains form an important part of UK-EU trade: what does this mean for future trade policy? 
Form Of Engagement Activity Engagement focused website, blog or social media channel
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Public/other audiences
Results and Impact Observation piece on the IFS' website on supply chains and Brexit by Peter Levell.
Year(s) Of Engagement Activity 2018
URL https://www.ifs.org.uk/publications/10302
 
Description Observation: How might Brexit affect food prices? 
Form Of Engagement Activity Engagement focused website, blog or social media channel
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Other audiences
Results and Impact Observation on How might Brexit affect food prices?
Year(s) Of Engagement Activity 2017
URL https://www.ifs.org.uk/publications/9562
 
Description Pesentation: The Exposure of occupations and local labour markets to trade shocks 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach Local
Primary Audience Public/other audiences
Results and Impact The exposure of occupations and local labour markets to trade shocks: the case of Brexit.
Year(s) Of Engagement Activity 2018
 
Description Presentation 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach Local
Primary Audience Public/other audiences
Results and Impact Presentation on Trade shocks, labour market outcomes and welfare by Agnes Norris Keiller.
Year(s) Of Engagement Activity 2017
 
Description Presentation 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach Local
Primary Audience Public/other audiences
Results and Impact Presentation by Peter Levell on 'What's the price of free trade?'
Year(s) Of Engagement Activity 2018
 
Description Presentation: Who's affected by Brexit? 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach Local
Primary Audience Public/other audiences
Results and Impact Presentation by Peter Levell and Agnes Norris Keiller
Year(s) Of Engagement Activity 2019
 
Description Presentation:The Exposure of Different Occupation Groups and Local Labour Markets to Brexit 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Public/other audiences
Results and Impact The economic impacts of post-Brexit trade options, Economic and Social Research Council
Year(s) Of Engagement Activity 2018
 
Description Quids in or counting our losses? the economic impacts of the Leave vote two years on 
Form Of Engagement Activity A magazine, newsletter or online publication
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Public/other audiences
Results and Impact Article on the economic impact of the Leave vote, by Peter Levell for the UK in a Changing Europe.
Year(s) Of Engagement Activity 2018
URL http://ukandeu.ac.uk/quids-in-or-counting-our-losses-the-economic-impacts-of-the-leave-vote-two-year...
 
Description Replacing EU funding: is Barnett the answer? 
Form Of Engagement Activity A magazine, newsletter or online publication
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Policymakers/politicians
Results and Impact David Phillips wrote for the Scottish parliament's external experts panel newsletter, Issue 4 - July 2018.
Year(s) Of Engagement Activity 2018
URL http://www.parliament.scot/S5_Finance/General%20Documents/Newsletter_Mar-_July_2018_FINAL.pdf
 
Description Talk given at the women's budget group brexit event 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Public/other audiences
Results and Impact Agnes Norris Keiller gave a talk at a joint meeting organised by the Women's Budget Group and Fawcett Society to discuss the findings of a new report by the Women's Budget Group and the Fawcett Society, exploring the economic impact of Brexit on women.
Year(s) Of Engagement Activity 2018
URL https://wbg.org.uk/events/exploring-economic-impact-brexit-women/
 
Description The Exposure of Different Occupation Groups and Local Labour Markets to Brexit 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Professional Practitioners
Results and Impact Presentation of work on Brexit's possible distributional impacts at Centraal Planbureau in the Netherlands by Peter Levell.
Year(s) Of Engagement Activity 2018
 
Description The Exposure of Different Occupation Groups and Local Labour Markets to Brexit 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach Regional
Primary Audience Professional Practitioners
Results and Impact Presentation of work on Brexit's possible distributional impacts at National Institute for Economic and Social Research 28/03/2019
Year(s) Of Engagement Activity 2019
 
Description The Exposure of Different Occupation Groups and Local Labour Markets to Brexit 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Professional Practitioners
Results and Impact Presentation of Brexit work to Centraal Planbureau visitors to IFS
Year(s) Of Engagement Activity 2018
 
Description The economic consequences of the Brexit deal 
Form Of Engagement Activity Engagement focused website, blog or social media channel
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Industry/Business
Results and Impact Contributed to a report by the UK in a Changing Europe on the economic effects of Theresa May's Brexit deal.
Year(s) Of Engagement Activity 2018
URL https://ukandeu.ac.uk/wp-content/uploads/2018/11/The-economic-consequences-of-Brexit.pdf
 
Description UK in a Changing Europe anniversary event 
Form Of Engagement Activity A formal working group, expert panel or dialogue
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Policymakers/politicians
Results and Impact The annual conference of the UK in a Changing Europe (timed for the anniversary of triggering article 50). Peter spoke on a panel with other experts discussing "Britain after Brexit". The event was videod.
Year(s) Of Engagement Activity 2018
URL http://ukandeu.ac.uk/multimedia/article-50-one-year-on-britain-after-brexit/
 
Description Visit 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Undergraduate students
Results and Impact Visit to University of Groningen by Peter Levell.
Year(s) Of Engagement Activity 2017
 
Description Who's affected by Brexit? 
Form Of Engagement Activity A formal working group, expert panel or dialogue
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Professional Practitioners
Results and Impact Presentation of Green Budget chapter on effects of Brexit (2018 GB) at the CIPFA Local Government Conference 26/03/2019
Year(s) Of Engagement Activity 2019
 
Description Women and Brexit panel discussion 
Form Of Engagement Activity A formal working group, expert panel or dialogue
Part Of Official Scheme? No
Geographic Reach Regional
Primary Audience Policymakers/politicians
Results and Impact Agnes Norris Keiller participated as a panel member in a discussion of the impact of Brexit on women's lives and rights organised by Jude Kirton-Darling MEP.
Year(s) Of Engagement Activity 2018
URL https://www.eventbrite.co.uk/e/women-and-brexit-tickets-47819322882#
 
Description Workshop 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach Local
Primary Audience Public/other audiences
Results and Impact Workshop on Trade shocks, labour market outcomes and welfare by Agnes Norris Keiller and Matthias Parey.
Year(s) Of Engagement Activity 2017
 
Description Young people's debate on Brexit 
Form Of Engagement Activity A formal working group, expert panel or dialogue
Part Of Official Scheme? No
Geographic Reach Regional
Primary Audience Public/other audiences
Results and Impact Peter level took part in a panel discussion about Brexit with a youth group from Lambeth.

Organised by Coin Street Community with David Noakes from the Liberal Democrats and Sian Berry from the Green party
Year(s) Of Engagement Activity 2018