WTO rules are the default in the event that the UK cannot strike a trade deal with the EU. How bad might that be? Will there be a tariff wall against UK exports that kills our trade?
We should clarify that whilst the EU has handled all negotiations on behalf of its constituent states, all 28 are members of the WTO in their own right. Therefore all the arrangements agreed with the EU would continue to apply to the UK separately. Other countries trade successfully with the EU without being members of the Single Market. The USA, for example, is its largest single trade partner so “access to” the Single Market is not in question as Remainers continue to imply.
In 1992 Bill Clinton based his successful election campaign on the slogan, “It’s the economy, stupid!” In 2016 David Cameron, George Osborne and most Remain campaigners followed
Bill’s lead, they assumed we would vote with our wallets and purses. So, for example, under Osborne’s direction the Treasury’s published forecasts assumed all the worst possibilities and none of the benefits of leaving, such as agreeing new trade deals with any countries or trade groups. They believed they would never be found out so the forecasts could never be disproven. In effect, they lied! It’s not just the economy, our identity and freedom matter at least as much.
Only about 14% of our economy is directly involved in the export trade (which is too little) and trade deals mainly concern traffic in goods, not services which comprise 80% of our GDP. Therefore the economy might suffer but not as devastatingly as is often portrayed. Also the WTO and its predecessor (GATT) have, over time, reduced average tariffs to 3-4% which is far less than typical currency movements that we have managed to survive so far. Of course some sectors have much higher tariffs, like cars at almost 10% (the Germans wouldn’t be happy with this barrier to its largest export market) and cheese at between 14% and 68% (which won’t please French farmers). This has raised the possibility of agreeing sector-specific deals with the EU but there is a problem, apart from the apparent determination of Merkel and Hollande (or some of his prospective successors) to prevent it. If the EU and UK agreed a low tariff for specific products then competitors from other countries trading with us would be at a disadvantage unless they could agree equivalent terms. But then by importing to Britain and re-exporting to the Continent we could become a back door into EU markets. The EU could not agree to this without border checks and the more such deals the harder it would become to agree terms with other countries.
Some economists argue that even if tariffs were imposed by the EU we should not respond, for two practical reasons: supply chain costs would not be driven up, for instance for our own thriving, car-export industry; and consumer prices would not be increased, helping our economy to prosper. Other economists point out that reciprocal tariffs collected by our customs authorities would far exceed those gained by the EU because of our large trade deficit and this surplus could be used to assist our industries to overcome the new customs barriers. In any case our dependence on EU trade has lessened over the past couple of decades and that trend looks certain to continue whatever happens, as the EU’s relative position in the global economy continues to slide.