Should the UK stay in or leave the EU: The UK’s Trade with the EU

How would leaving the EU impact the UK’s trade?

One of the central pillars of the EU is free trade. The unrestricted movement of goods and services between member states. This is very much a free market ideal. It forces countries to compete fairly and stops them hiding behind trade barriers.  Is all this free trade beneficial to the UK and would we suffer if we left the EU?

First, we should consider whether free trade is even desirable. The vast majority of economists would argue that it is. It forces firms to compete fairly, it allows consumers to enjoy a wider choice of products at lower prices, it encourages business to innovate, and allows them to take advantage of large export markets. Of course, this also means you need to stay competitive. Both sides of the EU referendum imply free trade is beneficial. The leave campaign emphasises how the UK could negotiate a new free trade agreement with the EU. While the remain camp points to the free trade we currently enjoy with the EU as a reason for staying.

If we assume free trade is beneficial we then need to consider how important trading with the EU is to the UK. The simple answer is very.

Around 44% of UK exports go to EU member states. That makes it by far the largest destination for UK exports. (The leave campaign would point out that the single biggest trading partner is the USA. This is true. But the EU collectively is significantly more important than the USA.) That figure of 44% represents about 13% of the UK economy as

That figure of 44% of UK exports represents about 13% of the UK economy as. So exports to the EU are vital to the success of the UK economy. We are also very reliant on the EU for our imports, in fact we run a trade deficit with the EU importing more than we export.

Trade with the EU is very important but does that mean if we left the EU we would be worse off? The leave campaign argues we wouldn’t be because we would simply negotiate a free trade agreement with the rest of the EU once we left. Quite possibly. However, that is not guaranteed. If the EU decided not to pursue a free trade agreement with the UK, or it took many years to implement, then there is a real risk to the UK of losing some of that export trade to the EU and having higher costs of importing from the EU. That would be very bad relative to where we are today.

Additionally, the UK as part of any future EU trade agreement, would almost certainly have to comply with EU trade rules which would be decided within the EU. If we left we would have little or no say about what those rule would be. That could clearly damage the UK. As a member of the EU we help determine what those rules are and can ensure they don’t harm our industries.

At this point the Leave campaign regularly says ‘Well we could and should trade more with India, America and China. Why trade so much with the ‘sluggish’ EU economy?’ For me this is one of the most illogical arguments the leave campaign uses. It just make no economic sense. The EU is the world’s largest economic area, it’s also the richest, we have significant influence over how it is run and it’s geographically and culturally close to us. Why would you want to leave the world’s biggest economic area, where you’re a major player and have a central role in the decision making? Seriously, why would you want to turn your back on that?

The EU is the world’s largest economic area; it’s also the richest; we also have significant influence over how it is run; and it’s geographically and culturally close to us. Why would you want to turn your back on all that? Why would you want to leave the world’s biggest economic area, where you’re a major player and have a central role in the decision making? In the hope of getting a better deal with China, America or the commonwealth? Even if we could agree a free trade agreement with these regions, (something that is not a certainty) all of these regions are economically smaller and we would have little influence over them. How is that a better outcome?

Additionally, why would the leaders of the USA, China, India etc. want to give the UK a better deal than they give the EU? Barack Obama said as much on his recent visit to the UK. The best trade deals will be made available to the EU. Not an independent UK. Therefore, if we left the EU, at least in terms of trade we would only be made worse of.

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