Four key principles for post-Brexit international trade

Theresa May’s trade mission to India will not have a significant impact on UK trade. Such visits tend to be more about political posturing than about hard-nosed economic policy. But the trip will focus minds on the question of how, under certain Brexit scenarios, the UK might develop its own trade policy. With that in mind, she needs to consider four things: 1. Size and distance matter One of the ‘most robust empirical finding in economics’ is the idea that trade between two countries will be influenced by their size and by their distance. The bigger and nearer a country is, the greater the value of its trade with any given partner. This holds for trade in services, as well as goods. This ‘gravity model’ partly explains why Switzerland, which has roughly a third of Canada’s population and GDP, imports twice as much from the UK. In 2012, a government paper found that the UK had the smallest market share in those economies that were furthest away. The implication for UK trade policy is that deals with large, near neighbours will be more valuable. Trade with India – however large an economy it is and however quickly it grows – […]