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Post A No-Deal Brexit? Reflections on Allister Heath's Essay
Created by John Eipper on 03/14/19 7:24 AM

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A No-Deal Brexit? Reflections on Allister Heath's Essay (José Ignacio Soler, Venezuela, 03/14/19 7:24 am)

I have carefully read the article by Allister Heath, recommended by Ángel Viñas in his latest post about Brexit (March 12th).

I would not dare to question or refute Heath's arguments regarding the advantages and benefits of Brexit for Great Britain. His reputation as an economist and journalist speak for themselves.

Essentially he argues that:

1. UK exports to the EU have not significantly grown since they have belonged to the common market;

2. Brexit's impact on the UK´s GDP is also very low, on the order of 1-2 per cent, and it would only affect one or two industries;

3. The UK government´s plan after Brexit to eliminate 80-90% of tariffs would dramatically reduce the net cost of departure;

4. The loss of the common-market advantages is going to be compensated by alternate foreign markets;

5. "The UK, as a net food importer, suffers particularly from higher food prices, impacting both on the consumer and on the food processing industry";

6. The cost of the Common Agricultural Policy (CAP) costs EU citizens roughly €100 billion (£86 billion) a year;

However, I would dare to make some comments on his arguments, of course only as an amateur economist and based on pure and basic common sense.

It is unclear if the "exports" quoted by Heath include all sorts of products, goods and services, particularly financial and other services. I do not know the real numbers for the export of goods and the benefits that UK industries had as participants in the tariff-free market in the EU, although I suspect and estimate it should have been huge. Also, if I understand correctly, the UK has had great privileges and benefits as the most important financial center in the EU, as a product of the free transit of capital and services. This most probably benefited it a great deal, as the decision to move the headquarters of important financial institutions to other cities in the EU shows. These privileges most likely will be lost after Brexit.

I believe that to assert that only one or two British industries will be affected by Brexit is too optimistic. It is very unlikely that the industrial sector of produced goods, the food sector, the automotive sector, the technology sector, tourist sector, or the financial sector will be unaffected by the increased cost of freight, tariffs, customs barriers or taxes to other alternate markets, until other bilateral trade agreements are arranged.

The UK's plan to eliminate 80-90% of tariffs on imported goods is probably necessary to reduce the increasing costs to UK citizens. However Heath seems to overlook the cost to the UK's budget, and these numbers are probably not insignificant.

Furthermore, I believe the likely devaluation of the pound--or increased valuation?--will exert great pressure on inflation, employment, productivity, the cost of living, cost of real estate, tourism, the cost of imported and exported products. It seems to me very optimistic to believe that all these effects after Brexit would not impact significantly the GDP in the short and the medium term.

A Brexit deal would probably mitigate all these impacts, until the economy is stabilized again. A no-deal Brexit as suggested by the author and which seems to be the most likely scenario after Parliament´s most recent rejection of May's deal, I suspect it would be much more dramatic for the UK and the rest of the EU, an undesirable scenario.

JE comments:  If you missed Heath's essay, here it is again:


Uncertainty, uncertainty.  There are way too many moving parts.  Yet can't we be fairly sure that UK real estate prices will decline post-Brexit?  I don't see the Russians taking up the slack.

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