Last month, our cost of Brexit model showed that leaving the single market and customs union had reduced the UK’s total goods trade by 11 per cent in March. Using the recently-released data for April, we estimate that total goods trade is once again 11 per cent, or £7.9 billion, lower.

To estimate the effect of single market and customs union exit, we use trade data from other advanced economies. An algorithm chooses – from a ‘donor pool’ of 22 advanced economies – a smaller selection of countries with economic characteristics that most closely matched those of the UK over the last decade. Those countries are combined into a ‘doppelgänger UK’, with the relative weighting of the selected countries chosen to create the smallest possible deviation from the real UK goods trade data between 2016 and 2019. By comparing the UK’s actual goods trade performance from January 2021 to that of the doppelgänger, we can assess how leaving the single market and customs union has affected Britain’s trade in goods. (For more details on how the model works, see the estimate for January.)

COVID-19 does not significantly affect our model, because we only use it to evaluate the UK’s performance from January 2021, when goods trade in advanced economies had largely recovered to pre-pandemic levels. The countries in our doppelgänger UK are chosen using pre-pandemic data, which also reduces the impact of the virus on our estimate.

To read the rest of the article on the Centre for European Reform, please click here.

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Ensuring the resilience of global supply chains of essential goods is crucial, the report says. An emergency Rapid Response Forum would provide G7 and other governments with a means of upstream policy co-ordination and, particularly, consultation ahead of the imposition of any trade restrictions. Such an initiative could also prepare timely co-operation on logistics, transportation, procurement, planning and communication.

Commissioned by the UK government, which is currently holding the G7 presidency, the OECD report underlines the need for governments to co-operate both with the private sector through, for instance, supply chain stress tests and emergency planning, and with other countries to boost transparency, discipline export restrictions and adhere to international regulation and standards.

The report says the COVID-19 crisis has caused a huge surge in demand for certain goods, notably in the health and information technology sectors but argues that global supply chains have been part of the solution. After shortages of masks and personal protective equipment, in particular at the beginning of the pandemic, both global production and trade of facemasks later increased tenfold to meet demand.

To read the full report from the Organization for Economic Co-operation and Development, please click here.

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Computer software, as well as computer and data services, made up more than $620 million in exports from Washington state to the UK in 2017. 4 These segments have grown substantially in the last few years, and the US and the UK are among each other’s largest e-commerce markets. Current trade negotiations may present an opportunity for the UK to align its privacy standards more closely to those in the US, although the UK government has stated that it will continue to follow the EU General Data Protection Regulation as it stands. 

The leadup to trade negotiations hit a snag when the UK passed a 2% digital services tax in 2018. The tax went into effect in April 2020 and applies to firms with global sales of more than $624 million (£500 million) and over $31.7 million (£25m) in the UK. US officials have criticized the tax as largely targeting American firms. Digital trade is a major focus of the UK’s negotiating objectives, and the US is using current talks to push for the tax’s repeal.

This new flexibility to adopt US standards may also apply to food regulations. This is a difficult issue for the UK government, which must balance reducing tariffs with the interests of domestic farmers and consumers. The EU also has stricter guidelines on genetically modified food products. Changing these restrictions could increase access for Washington farmers. A major question that will be addressed in these negotiations is the extent of the UK’s market reorientation away from the European Union, with the potential of greater alignment and harmonization of standards and regulations between the two nations. The extent to which the United Kingdom retains its current European food standards or makes a decisive shift to acceptance of US standards could impact US and Washington state agriculture trade with the UK.

This longstanding European approach to regulatory issues, including food safety regulations and technical barriers to trade, has impacted agricultural trade between the US and Europe. Many US agriculture interests including farmers and ranchers in Washington state, have historically felt their input has been marginalized in regulatory discussions and decisions with the hope that this will not be the case in the US-UK negotiations.

Trade barriers and transportation costs have also impacted agriculture trade between Europe and the US and efforts to remove barriers and create a level playing field for Washington farmers and ranchers will impact some Washington state commodities more than others.

Washington state fruits and vegetables, including potatoes, apples, cherries and pears, are currently impacted by European tariffs. Removing these barriers through a US-UK FTA can potentially create new opportunities for Washington state exporters. For example, the total value of Washington apple exports to the EU in 2019 was $1,270,864 with the UK accounting for almost all of that. Beyond fruits and vegetables, the US exports over $1 billion worth of fish and seafood products to the EU each year, with Washington state second only to Alaska with $302 million in exports. The UK was the leading market for Washington seafood products last year ($50 million.) The US wine industry, in which Washington state is a leading producer, also faces EU tariffs on imported wine and is another potential growth area with a new trade accord.

To download the full report, please click here.

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The white paper talks to the importance of international cooperation. Specifically, the white paper observes that the “EU will continue to cooperate with like-minded countries, but also with global players, on AI, based on an approach based on EU rules and values.” The white paper also goes on to note that “the Commission is convinced that international cooperation on AI matters must be based on an approach that promotes the respect of fundamental rights, including human dignity, pluralism, inclusion, non-discrimination and protection of privacy and personal data and it will strive to export its values across the world.” The U.S. and the EU, as the world’s leading economies with strong ties grounded in common values, provide a strong basis for AI governance that can work for the EU and the U.S. and provide a model globally.

This submission is divided into two parts. The first outlines why transatlantic cooperation on AI is important. The second identifies three broad areas for transatlantic cooperation on AI: innovation, regulation, and standards, including with respect to data.

To view the original report, click here.

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To view the original report, please click here

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Investment is at the core of the U.S.-UK relationship.

• The UK is the single largest investor in the United States. British companies have invested more than $540 billion in the U.S., accounting for more than 15% of all inbound foreign direct investment (FDI).
• The U.S. is also the largest investor in the UK. American firms have invested nearly $750 billion in the British market, nearly a quarter of their total investment in Europe, and more than 12% of all U.S. FDI worldwide. The UK is the second-largest recipient of U.S. investment worldwide (behind only The Netherlands).

Investments translate into American and British jobs.

• More than 1.25 million Americans work for British companies in America, and over 1.5 million Britons are directly employed by U.S. affiliates. Bilateral trade and investment support millions more jobs indirectly.
• Every American state has jobs that are connected to or originated from an investment by a UK company.  These jobs are high quality and highly paid—in manufacturing, chemicals, pharmaceuticals, information technology, and financial services, among other sectors.
• U.S. jobs supported by British investment are high quality and highly paid—in manufacturing, chemicals, pharmaceuticals, information technology, and financial services, among other sectors.

Trade ties are also strong, with room to grow.

• The UK is the United States’ 7th largest trading partner and the 4th largest export destination for American goods and services.
• 42,000 American firms export to the UK and more than 7500 have operations there.

American Firms Export to the UK

• Overall, the U.S. enjoyed a net surplus of $15.9 billion of trade in goods and services in 2017.
  • The U.S. exported $125.9 billion of goods and services to the UK, making it the UK’s 2nd largest source of imports.
  • The U.S. imported $110 billion in goods and services from the UK; the U.S. is by far the UK’s largest export market.

UK – 4th Largest Trading Partner

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Previous papers have looked at the interwar relationship between aggregate trade flows and the average tariff, and have found that interwar protection mattered less for the value of world trade than was traditionally thought. They have also explored the interwar relationship between trade bloc membership and bilateral trade flows, and concluded that trade blocs mattered less than traditionally thought as well.

In this paper we have estimated the impact of interwar UK trade policies on UK imports, using detailed information on trade and trade policy for 258 product categories. Our mean estimates suggest that the shift toward protection in 1931 and 1932 can account for about one-quarter of the decline in UK imports between 1929 and 1933, which is in line with previous results for the United States. However, we have also found that the shift toward protection, which was explicitly discriminatory, substantially increased the share of UK imports coming from the British Empire. Our mean estimates suggest that trade policy can explain over 70 percent of the increase in the Empire’s share of UK imports between 1930 and 1933. Other forces served to increase that share still further, but the impact of British protectionism was substantial. As late as 1938, trade policies can still account for over 50 percent of the shift toward Empire experienced since 1930.

What would we have found had we not had data on tariffs and trade for our 258 goods? What if we had only been able to calculate tariffs using more aggregate data? Calculating average tariffs by dividing tariff revenue by the value of imports is standard in the economic history literature, given the lack of uniform trade and tariff classifications in the past: as previously noted, it is what Irwin (1998a); Madsen (2001); and Estevadeordal, Frantz, and Taylor (2003) all do. Sometimes it has been done for broad categories of goods rather than imports as a whole (Lehmann and O’Rourke 2011); sometimes it has even been possible to calculate bilateral tariffs using the method (Albers 2017). Imagine that it were possible to compute such average tariff measures bilaterally, for each of our nine categories h used in the econometric analysis; or more realistically, given the data constraints of the period, for agricultural and non-agricultural goods;51 or even more realistically, just for aggregate imports. Table  3 presents the results that we would have obtained for 1933, looking just at the impact of tariffs, if we had only had data on trade and trade-weighted average tariffs at these three higher levels of aggregation.52 As can be seen, the results regarding the impact of tariffs on the total value of trade are essentially unaffected by the level of aggregation, since these depend above all on the upper level elasticity of substitution κ, which was in all cases estimated using aggregate data. However, the estimated impact of tariffs on the direction of trade falls as the level of aggregation increases: if we had used bilateral trade-weighted average tariff data in a one-good model we would have concluded that tariffs only accounted for 13 percent of the shift toward Empire, whereas in fact they accounted for over 50 percent.

Methodologically, this paper suggests that there are advantages to using trade and trade policy data that are as disaggregated as possible, and looking at what trade blocs do, as opposed to simply looking at whether they exist. Historically, the paper suggests that discriminatory interwar trade policy mattered more for trade patterns than the previous cliometric literature has found. It certainly mattered a lot in the British case; whether what was true for the United Kingdom was true elsewhere is a question which we hope that future research will address.

To download the full report, please click here.

Alan de Bromhead is a Senior Lecturer in Economics at Queen’s University Belfast, and a research affiliate at the CEPR.

Alan Fernihough is a Senior Lecturer at Queen’s University Belfast’s Management School, and a Research Associate at Queen’s University Centre for Economic History. 

Markus Lampe is a Professor of Economic and Social History at Vienna University of Economics and Business.

Kevin Hjortshøj O’Rourke is a Professor of Economics at NYU Abu Dhabi, is a Member of the Royal Irish Academy, a Fellow of the British Academy, and a former Research Director of CEPR.

Copyright 2020 American Economic Association. All rights reserved.

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