Salt and horses: Brexit and British prices

Stewart Paterson:

Hello, and welcome to Current Accounts, the Hinrich Foundation's Trade Podcast, I’m Stewart Paterson. In today's episode, we are going to be talking about non-tariff barriers to trade, consumer prices and their impact on economic welfare. And we are going to do that through the prism of Brexit. For those of you who are not so familiar with UK-EU trade relations, in mid 2016, the United Kingdom voted to leave the European Union. This was followed by a prolonged negotiation between the two parties that resulted in the UK leaving the EU at the beginning of 2020, but under a transition agreement that meant that effectively nothing changed until January 2021, when the Trade and Cooperation Agreement that the two parties negotiated came into operation.

From a trade perspective, the important thing about the TCA was that tariff-free and quota-free trade between the two parties continued as before, but because the UK was no longer in the European single market, and no longer in the Customs Union, some non-tariff barriers to trade came into operation that were not there previously. Now, obviously, this is quite exciting for trade economists potentially because it provides a kind of laboratory-type environment in which to examine the impact of trade legislation, and particularly non-tariff barriers on economic welfare - at least that laboratory-type environment might have existed, if it was not for the global pandemic, and the Ukrainian war, which obviously very much muddled the data and creates a lot of noise that we need to try and cut through.

So, it is against that backdrop that a very interesting paper has been published by the Centre for Economic Performance called "Non-tariff barriers, and consumer prices: the evidence from Brexit". The paper has been authored by Nikhil Datta, Richard Davies, Josh De Lyon, and Jan David Bakker, who is an Assistant Professor of Economics at Bocconi University in Milan, and he joins me in the studio today. Welcome, Jan.

Jan David Bakker:

Welcome, Stewart, thanks for having me.

Stewart Paterson:

Well congratulations, firstly, on a very interesting paper, and a paper that certainly in the UK, and I suspect maybe in the European press too, has attracted a lot of publicity and attention. Perhaps the journalists have not always picked up on the nuances of your findings, but certainly, it has been received very well, and it is a highly topical conversation and discourse that you have been undertaking. Perhaps I could just start by asking you what your motivation for the study was, what you set out to try and analyse, and how that shaped the design of the study?

Of course Stewart, so the starting point for us was really trying to understand what Brexit does, and what the changes in trade policy resulting from Brexit are, and how they affect the British consumer. So, having been in the UK for a number of years during the period leading up to the referendum, and then the period after the referendum during those tumultuous times when the new relationship was being negotiated, that was really the key public policy topic of the time. We were hoping to contribute to our understanding of what the effects of Brexit are on the UK economy.