British manufacturers in key sectors will have to increase exports to non-EU countries by as much as 60 per cent to make up for lost EU trade under a “hard Brexit” scenario, according to a new report.
A hard Brexit, in which the UK and the EU fail to agree a future trading relationship and default to World Trade Organisation terms, would see revenues from EU exports fall by £17bn per year, according to the report by law firm Baker McKenzie and consultancy Oxford Economics.
The sectors analysed – the car trade, technology, healthcare and consumer goods – account for 45 per cent of Britain’s manufacturing exports to the EU, meaning the total cost in lost revenues could be considerably higher.
The UK would have to increase exports to the five major non-EU trading partners – the US, China, Japan, Canada and South Korea – by up to 60 per cent to make up for the lost revenues in the EU, the report said, using the widely respected Global Trade Analysis Project (GTAP) economic model.
In the consumer goods sector, more reliant on EU trade, that could rise to a necessary increase of 150 per cent to balance out losses.
The 2016 British market share of imports in the main countries where the UK could expand stood at only 2.1 per cent, according to the research.
Samantha Mobley, London head of EU, competition and trade at Baker McKenzie, said: “Our data shows that the UK needs to begin the very lengthy process of negotiating free trade agreements with third country markets now in order to mitigate the cliff-edge effect of the fall in trade in case no EU agreement kicks in immediately.”
There is “mounting pressure” on the government from firms to negotiate new customs arrangements for post-Brexit trade with the EU, according to Jenny Revis, a Baker McKenzie trade partner.
A hard Brexit could also result in government being forced to offer subsidies or other enticements to large manufacturing firms. The government has previously faced criticism for offering assurances to car giant Nissan that its emblematic Sunderland plant would not be negatively impacted by Brexit.
Revis said: “Keeping companies in the UK may depend on the willingness of the UK government to offer incentives to industry, especially where support is needed to offset any new tariffs. For the short term, at least, such incentives will need to be balanced with EU rules governing state aid."