Key takeaway: trade policy analysis needs to account for both scale economies and input-output linkages

Read the paper: personal.lse.ac.uk/sampsont/Exp...

Or the VoxEU column: cepr.org/voxeu/column...

Key result: US export growth post-PNTR is lower in industries with greater increases in import competition

Mechanism: import competition reduces industry size, leading to lower productivity through scale effects and lower exports

Supports Krugman's theory that import protection affects exports 3/

Thanks for the question. At the risk of getting bogged down in details, our approach doesn't pick a single comparator year. The estimates are normalised to zero pre-referendum, but as you can see in the chart below for exports, there wasn't a clear trend in EU vs non-EU trade between 2016 and 2019.

Paper also analyses whether uncertainty arising from the 2016 referendum affected trade pre-TCA

But we do not detect significant uncertainty effects

By contrast, big changes are immediately obvious once the TCA comes into force - see chart below for exports 7/

Imports

Importers bought less from EU, but also increased imports from outside the EU. Figure shows jump in non-EU imports for firms that were more reliant on imports from EU pre-referendum

Results imply total worldwide imports fell 3.1% due to TCA, or £20 billion in 2022 6/

Exports

TCA led to immediate, sharp drop in exports for average firm

But exports fell more for smaller firms. Estimate 30% drop in exports for smallest fifth of sample firms, 15% drop for middle fifth, but no effect on exports for largest fifth of firms 3/

New research. How has Brexit affected UK trade?

We find TCA reduced goods exports by 6.4%, imports by 3.1%

Smaller firms hardest hit. Around 16,400 firms stopped exporting to the EU entirely

But larger firms' exports unaffected, contributing to relatively small fall in overall trade 1/

At the firm-level, the TCA led EU imports to fall around 20% compared to rest of world imports

Fall is observed for both small and large firms and is partly due to firms replacing EU imports with imports from rest of world

Switch away from EU imports very clear in chart 11/

So far, we've only talked about exports. What about imports?

Total UK imports have grown more slowly than other major countries' imports since 2016, driven by lower growth of goods imports 10/

Best evidence TCA has reduced goods exports comes from firm-level research comparing EU vs non-EU exports

Chart below shows estimated changes in exports to EU vs non-EU within firms

Exports to EU drop around 10% when TCA comes into force at start of 2021 7/

But slower growth of goods exports has been offset by faster growth of services exports

Services now account for more than half (54%) of total UK exports 4/

UK goods exports have grown more slowly than exports of other major economies since TCA introduced in 2021

In real terms (i.e. adjusting for inflation) UK goods exports were 1% lower in 2023 than in 2016 3/

UK's overall export growth since 2016 has been okay. No immediately obvious Brexit effect

Total UK export growth since 2016 similar to French & German export growth - see chart

But total export performance masks important differences between goods & services 2/