University of Sussex: Brexit may lead to boom in tourism and high-end exports in the South East

Britain is currently part of the same ‘customs territory’ as the rest of the EU and so trade is subject to very few border (customs) formalities (just as trading between Surry and Sussex is). Even if we sign a free trade agreement that eliminates tariffs and differences in standards with the EU, there will still be customs formalities on EU-UK trade – paperwork, inspections and occasional delays and uncertainty as a result. These increase costs discourage trade, and this in turn might make investing in Britain less attractive.

When sterling falls, foreign goods and services cost more in terms of pounds. This affects both inputs into UK production and consumers’ purchase of foreign goods and services. In the latter case, if wages don’t keep up, our money doesn’t go as far and we are worse off. 

Extra customs formalities will raise costs under any circumstances, but particularly if there are insufficient staff to manage them effectively. 

Many environmental and safety standards derive from EU regulations. In their absence, the UK government might decide to aim for lower standards, especially if it came to a trade-off between lower standards and access to markets in countries with which it was negotiating trade agreements. 

Many EU regulations will be replaced by UK regulations covering the same areas. These may or may not be more burdensome. Many of the regulations that UK business finds burdensome – e.g. minimum wages and planning law – are home grown. 

Many goods cross the EU-UK border several times in the course of production. If tariffs are introduced on such trade (the so-called ‘no deal’ scenario) they might have tariffs levied on them at each crossing. One can devise ways of avoiding this, but at the expense of the bureaucratic costs entailed in keeping track of the various components so that tariffs can be levied at the end of the process. 

The EU funds elements of a number of activities directly including agriculture and research. Brexit will remove this source of funds and its replacement will be a matter of discretion for the UK government.

It is not clear yet whether the UK will have a deep and comprehensive trade agreement with the EU, none at all, or somewhere in-between. Similarly, it is not yet determined what tariffs the UK will levy on trade from non-EU countries and what sort of trade agreements (if any) will be signed with them. All this uncertainty is bad for business and investment 

Some areas of policy that are currently run by the EU – e.g. agricultural and fisheries policies – will pass to the devolved national administrations. Moreover, some commentators have argued that Brexit provides an opportunity to devolve further powers to the nations and to the English regions. 

Brexit is likely to reduce existing UK exports to the EU, so in order to keep importing, the UK will need to find new products and markets. Since its comparative advantage lies in relatively sophisticated goods and services, these are likely to be the more successful sectors in increasing foreign sales. 

If the costs of importing increase, some buyers will switch their demand to local producers. 

When sterling falls, a given price in pounds translates into a lower price in dollars or any other foreign currency. This will tend to boost sales, at least to some extent. 

Brexit will be a shock and shocks can stimulate innovation and fresh thinking. This is especially so for exporting sectors because the devaluation of sterling and other pressures to increase exports will increase the returns on innovation in those sectors. 

If you are outside the UK and want to buy a British firm whose value is given in terms of sterling, you need fewer dollars to do so. At least in the short run, there are probably some bargains to be had. 

EU standards reflect average views and opinions across the whole EU. After Brexit, they need reflect only average UK views and in some cases (e.g. animal welfare?) these may be to seek higher standards. 

With a weaker (devalued) pound, it is cheaper in terms of Euro or other foreign currencies to visit the UK. 

At present the EU negotiates trade agreements as a bloc and so the outcome reflects the wishes of all EU members. When the UK negotiates alone, it may have less negotiating power (because its market is much smaller than the EU’s), but it can all be focussed on UK objectives. An example: the EU currently has a tariff of over 16% on oranges when Mediterranean producers pick their crops, but this serves no UK goal.