#Brexit – The Effect on the Trade Deficit

Currently the UK has the biggest trade deficit in history.

In laymans terms, the country is buying more things than makes or to put it another way, the country sends more money out of the country than it brings in.

Whichever way you put it, the trade deficit is increasing the amount of debt in the UK. 2014_United_Kingdom_Products_Export_Treemap

So what effect will #brexit have on the trade trade deficit?

It is no clear what #brexit means with regards to trade, but lets assume after #brexit that the UK is treated like any other country outside of the EU, China for example.

If trade between the UK and the EU became the same as trade between the UK and EU, the difference for the public would be barely noticeable if noticeable at all.

UK businesses selling large products in the EU to the end customer will probably see their business decline and likewise for end consumers in the UK who are buying large products from companies in the EU.

Given that the UK imports more than it exports, you would expect this to effect businesses sending into the UK more than UK businesses sending out of the UK.

You would expect businesses to business trade to increase due to the reduction in business to person transactions. This will cause a reduction in the trade deficit.

With regards to moving money. Again it has not been exactly laid out what #brexit means with regards to moving money between the UK and EU countries.

However, if we assume that banking between the UK and EU becomes the same as banking between Taiwan and the UK we can easily understand what it will look like.

For the average consumer the difference will be negligible, if there is any difference at all. For businesses paying with bank transfer, they will be paying 10-20 pounds extra per transaction and the transaction will take 2-3 days longer. In the grand scheme of things, a negligible difference.

Customs charges. UK businesses will have to pay custom clearance charges, depending on how much the business is importing this could be a big percentage on the purchase cost or next to nothing. And the situation will be the same for businesses importing from the UK. Because the UK imports more than it exports, customs charges will effect imports more than exports so if anything, a tiny reduction in the trade deficit.

In summary, #brexit will very slightly reduce the UK trade deficit. The difference of #brexit to end consumers will range from negligible to nothing. The difference to business will also be tiny.

#brexit will have very little effect on the UK trade deficit and the effects #brexit on international trade in and out of the UK can be easily understood by comparing the hurdles to business between the UK in the EU and with the UK doing business with a country like Taiwan.

Not rocket science and certainly not something to worry about


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