UK losses from Brexit could be a lesson for Brazil – 08/09/2024 – Marcos Mendes

In July 2016, the British voted in favor of political and economic separation from the European Union (EU), Brexit. In January 2021, a cooperation agreement between the parties entered into force, establishing tariffs, non-tariff barriers and limits on the hiring of workers.

The economic arguments of Brexiteers are that the UK will be free to strike more favorable deals with countries outside the EU. There will be greater control over immigration, opening up more jobs for Britons and reducing the pressure of foreigners on public services. Economic regulation can be simpler and more flexible than in the EU, improving the business environment and, in particular, facilitating the development of small businesses.

Due to the temporal coincidence with the Covid-19 pandemic, the economic implications of Brexit are difficult to assess. However, recent studies have tried to disentangle the effects, and the numbers aren’t good.

Springford (2022) estimate that in June 2022, UK GDP would be 5.5% lower compared to the alternative scenario of no Brexit. Kaya and co-authors (2023) estimate a loss of 2% to 3% in the short term, increasing over time and reaching 6% by 2035. These are huge consequences. Taking 2016 as a starting point, annual growth would be between 0.3 and 0.9 percentage points year-on-year.

Van Aersen and Spital (2023) attributed this loss to reduced trade with the EU that was not compensated by other partners. Restrictions on workers from EU countries have created production barriers in many sectors. Smaller companies, which were seen as beneficiaries of Brexit, lost ground in exports due to customs requirements and the costs of border barriers.

Portes (2023) emphasizes the fall in investment rate and its negative impact on productivity. As the United Kingdom is no longer attractive as an export base for the EU, companies are looking to locate in other countries in the bloc.

The United Kingdom has sought greater openness to the rest of the world. A “UK Global Tariff” was established which simplified the tax structure and imposed zero duty on many intermediate and final consumer products.

Free trade agreements were signed with Australia, New Zealand, Japan and Norway. As total immigration increased, there was greater openness to the entry of skilled workers from countries outside the EU.

However, most of the efforts seek to regain access to markets that the country already had as a member of the European Union. In immigration, there is a loss of flexibility. Previously, EU workers, whether high- or low-skilled, were matched to available vacancies. Now, the law to attract migrants from outside the EU accepts only the most qualified, opening up vacancies for low-skilled workers. A mismatch between labor supply and demand reduces the efficiency of the economy.

Brexit is a typical example of the destruction of value arising from reduced trade opportunities and the inefficient allocation of capital and labour.

The post-Brexit United Kingdom is a more open economy than Brazil. Trade flows (exports and imports relative to GDP) nearly doubled (66% versus 34%, according to World Bank data). Effective average rate protection in Brazil is around 25% (Castillo, 2015against 3.9% in the United Kingdom (UK Trade Policy Monitor).

These numbers give a measure of the opportunities Brazil are squandering. We do not have relevant free trade agreements. We have always missed the opportunity to absorb advanced technology, skilled labour, better quality and lower cost inputs and new business opportunities.

The British are suffering from Brexit, the Brazilians never “bra-entered”.

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