The Industrial Cost of a Hard Brexit

Jacob Rees-Mogg Is a Nightmare for Britain's Bosses

High-value manufacturers would suffer even if Britain signed trade deals with every non-EU country after a hard Brexit, according to a new research model.
Photographer: Ben Pruchnie via Getty
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Emma Walmsley, chief executive of drugs giant GlaxoSmithKline Plc, intervened again in the Brexit debate this week, saying it was essential to tie up a transition deal soon. She wants zero tariffs on healthcare goods too, if possible.

Ardent Brexiteers such as Jacob Rees-Mogg, the Conservative Party leadership hopeful, might dismiss this as yet another burst of self-interest from the business class elite. Yet some fascinating new research from the University of Sussex's U.K. Trade Policy Observatory shows Walmsley is absolutely right to raise the alarm.

The report tries to model for the first time the potential impact of Brexit (in five possible guises from staying in Europe's single market to a no-deal departure) on Britain's individual manufacturing sectors. Under all scenarios, it's not a pretty picture for most industries. The chemicals and pharmaceuticals sector, of which Glaxo is a big part, is among the least fortunate. Look at this chart on exports:

The striking thing about the research is that it tries to imagine a world in which the wildest dreams of leavers are realized and Britain manages to conclude trade deals with every non-EU country after a hard exit. That's the yellow bars in the chart above, and it still doesn't look very healthy.

Exports are only part of the picture, of course, and a corresponding drop in British imports in a post-Brexit world would be a boon to the local food industry and the wood, paper and printing sector, whose output would rise to fill the gaps. U.K. macaroni producers would get an output increase of more than 90 per cent from a hard Brexit, the researchers say.

Higher value manufacturers would be less blessed than the cheese-makers, however.

Brexit and U.K. Manufacturing

All Brexit scenarios look bad overall for British exports, imports, output and prices

Source: U.K. Trade Policy Observatory

Note: FTA is free trade agreement. FTA67 is the 67 countries the EU has free trade agreements with.

For an idea of why Britain's advanced industrial base is so worried, this chart gives you an idea, showing how much the likes of carmakers and the pharma groups rely on foreign trade, both inbound and outbound:

Heavy Dependence

Top five British manufacturing export and import industries

Source: U.K. Trade Policy Observatory

Of course, we know the views among some of the Brexit crowd about "experts". And, in fairness, the economists who pulled together the paper say it's not intended as a "prediction" but more a raising of concerns. Notably, there's no time frame given for how long these declines in trade would take to develop.

Still, it's a handy weapon for all the industrialists who've been accused of Brexit bleating.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the authors of this story:
    Elaine He in London at ehe36@bloomberg.net
    James Boxell in London at jboxell@bloomberg.net

    To contact the editor responsible for this story:
    Edward Evans at eevans3@bloomberg.net

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