After Brexit: how important would UK trade be to the EU?

The question of what trading arrangements the UK will have with the European Union, should we choose to leave the EU, is clearly central to evaluating the economic impacts of “Brexit”.  On the one hand, the “remain” campaign argues that there are no guarantees of any trade deal, and even if there is one, it may be very asymmetric, as with Norway (essentially obliged to accept the Single Market rules without having much if any say in what they are) or Switzerland (which does not have full or automatic access but still has free movement of workers). On the other hand, the “leave” campaign argues that we would be one of the EU’s largest trading partners, and therefore they would have a strong incentive to enter into a deal that was more advantageous to us than that of Switzerland or Norway.

But, although it is clear that the UK is indeed a major trading partner for the rest of the EU, statistics on precisely how large are hard to come by. So my eye was caught by a claim by Dan Hannan MEP:

We run a massive trade deficit with the EU (but a surplus with the rest of the world). On the day we left, we’d become the EU’s single biggest market, accounting for 21 per cent of its exports – more than its second and third largest markets (the US and Japan) combined.

Now, to say that Mr Hannan’s statistics should be taken with a grain of salt is an understatement.  While both sides in the referendum campaign use statistics "as a drunk uses a lamppost" (for support, rather than illumination), Mr Hannan has a habit of simply inventing them.  Not only does he not check them, but, considerably worse, he doesn’t correct his errors, even after they’ve been pointed out, as Hugo Dixon explains here (Hannan has apparently accepted that his claims are false, but still not taken down or amended his video). 

So I was immediately sceptical.  And the fact that he seems to have been making the same claim for at least three years doesn’t exactly inspire confidence.  But, off the top of my head, I neither knew what the correct figure was, nor of where exactly to find it. And it certainly is an important one in the debate. So I decided to try to work it out.

 It turns out that it is relatively easy to find numbers for shares of eurozone exports (of goods, not of services). See here and here, which give numbers like 12 or 13 percent.  But to get a figure for the EU ex UK as a whole, you have to construct the numbers yourself.  I did this using the European Commission trade helpdesk (one could presumably also use the IMF Direction of Trade statistics) for trade in goods.

The results are that goods exports of the EU, not including the UK, to the rest of the world, including the UK, are about 1,800 billion euro; to the UK, about 295 billion euro*, or a little under 16 percent.  Here’s a pie chart:

So Mr Hannan’s 21 percent is indeed way off; but the second half of his statement, where he suggests that Japan is the EU’s second largest export market, and that the UK is larger than the second and third largest markets put together, is even more ludicrous. 

But these figures do suggest we would become the EU’s single largest trading partner for trade in goods. However, this would probably not be the case for trade overall.  Including services would probably reduce the UK’s share somewhat (the EU ex UK exports something over 600 billion euro in services, while the UK imports only about 40-45 billion euro in services from the rest of the EU). Moreover, the US would very probably overtake the UK as the EU ex UK’s largest single export market.  I have, however, not presented the numbers including services here, since they are from different sources (Eurostat and ONS) and aren’t fully consistent. It would be a very useful exercise for someone to flesh out this analysis, including trade in services, and looking at trends over time.

What does this tell us about the UK’s bargaining power with the EU after a Brexit?  Well, it certainly confirms that we would become one of the EU’s largest export markets, even if not necessarily the largest.  But we’d still be far less important to the EU than they are to us – the EU still takes about 45 percent of our exports, down from 55 percent at the turn of the century. And, if you treat the EU as one country, as this analysis does, “exports” become considerably less important overall (intra-EU trade is far more important to almost all EU countries).   Indeed, as this Eurostat table shows, only for Ireland and Cyprus does the UK represent more than 10 percent of total (including intra-EU) exports.

So how important would exporting to the UK be to the EU economy after Brexit?  EU exports to the UK would represent about 3 percent of EU GDP; not negligible by any means, but equally perhaps not as dramatic as one might think. The EU, and even more so the UK, would certainly have a strong incentive to negotiate a sensible trading arrangement post-Brexit.  But no-one should imagine the UK holds all the cards.

Postscript

Part of the point of this note, obviously, is a plea for care and accuracy in the use of statistics in this debate, from all sides and on any topic. In the same article, Mr Hannan also makes some assertions  about the relative export performance in per capita terms of the UK and Switzerland.  These are also, unsurprisingly, completely wrong.   The electorate deserves a vigorous debate on the merits or otherwise of Brexit – based on accurate facts and statistics. People, on either side of the debate, who mislead or misrepresent the fact in order to strengthen their case are guilty of  a serious disservice to the public.   

* (typo corrected - see comment from conservativesupport 

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