The Government is hoping to negotiate a free trade arrangement with the EU when we leave, but what if can’t get agreement from all 27 nations plus the EU Parliament (or Wallonia)? In the worst case we would be reduced to World Trade Organisation (WTO) terms, but how bad is that?
For cars the WTO tariff on imports is 10% but with sterling’s fall against the Euro (if it stays at around 15%) vehicles made here become 25% cheaper than those imported from the EU whilst our exports would undercut their prices in their own markets by 5%. Of course we import some auto components but we would now be free to cut tariffs where necessary and reduce company taxes for our manufacturers. Imagine the effect all this would have on consumers. Britain built 1.6 million cars last year, exporting nearly 80% of them around the world, but our trade deficit with the EU was £14bn.
For food and drink the WTO tariff is 20% and our 2015 trade deficit with the EU was £16.5bn. After leaving we could return to trading with our Commonwealth partners and other countries at world prices rather than the inflated ones under the protectionist Common Agricultural Policy.
For financial services we have a £16bn trade surplus with the EU but these services are much less price sensitive than manufactured or agricultural products. Will we be able to continue selling our services if we are outside the Single Market? Our regulations would not just be equivalent, but identical to theirs on exit so we should have passporting rights just like other third-party countries, the USA or Switzerland for instance. If the EU changes its regulations (over which we would no longer have a say) we would again be in the same position as the USA and others who might choose not to follow these changes. Banks, insurance companies and other firms would need to open EU offices with at least administrative staff if not the top professionals. Some jobs would be lost but our lower corporation tax rates would still attract foreign institutions.
Some rebalancing of Britain’s economy away from finance towards manufacturing, in employment at least, might well be the result of a failed trade negotiation with a hostile EU. Of course we cannot be sure of the net outcome because in the meantime the Euro might have slumped given its continuing crises, in which case we all would suffer. But we would be safer with our newly restored freedom to seek trade deals in the big world, becoming less dependant on a market that has long been declining in global importance.