The cost of Brexit becomes apparent

THE COSTS of Brexit are adding up. Exports of goods to the European Union (EU) fell by 40% between December 2020 and January 2021, while imports dropped by almost 30%. Although much of that fall represents the unwinding of prior stockpiling and pandemic-related effects, there are clues in the data that suggest a substantial proportion reflects the new post-Brexit reality. First, trade with the EU is being hit harder than other trade. Compared with a year ago, EU-bound goods exports were down by just over 10% in January while exports to non-EU countries rose by almost 5%. Second, the differential falls in exports and imports point to border-rules enforcement being a factor. While the EU states are applying the new tougher checks, Britain is still mostly waiving them. The net result is trade disruption felt more keenly by British exporters than importers and exports to Europe falling faster than imports. Overall, the Office for Budget Responsibility, a fiscal watchdog, estimates the hit from border frictions will be around 0.5% of GDP in the first quarter of 2021.

Although Britain avoided the imposition of tariffs by signing a trade deal with the EU, there is new friction at the border. Sanitary and phytosanitary checks have not just imposed new costs but also created delays—a particular problem for perishable goods such as shellfish. Re-exporters of goods manufactured outside Britain have fallen foul of rules-of-origin regulations. Trading in billions of euros of continental shares has migrated across the Channel because the EU has, so far, declined to decree Britain’s financial regulation equivalent to its own.