Saturday, January 18, 2014

How Unlikely Is The EU To Erect Trade Barriers In Case Of Brexit

Ford Motors has threatened to end its car production in Britain if it leaves the EU. The stated reason is that they fear that cars produced in Britain could face tariffs when exported to the EU.

Many people dismiss this fear in the ground that Britain is the biggest export market for the rest of the EU, meaning that the EU would have too much to lose to start a trade war. However, while that makes it indeed unlikely, it doesn't mean it can be ruled out entirely.

hat is beacuse first of all, while the EU would lose from trade restrictions, Britain would lose a lot more simply because the rest of the EU has an economy that is about 5½ times bigger, meaning that British-EU trade is relatively much more important to Britain than to the EU.

But if the EU nevertheless loses why would it want to erect trade barriers? Well, one reason would be to punish Britain and set an example to deterr for example Sweden from following its example.

Furthermore, it should be noted that if Britain leaves, then the balance of power in the EU will shift to France and other more protectionist countries.

It is despite the above more likely than not that free trade between Britain and the [rest of} EU will prevail. But it does mean that trade restrictions can't be ruled out entirely.


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