We account for the impact of enlargement by focusing on the share of British goods exports (the data on services is limited) going to the 14 other countries that formed the European Union before its expansion into eastern Europe in 2004. The initial period after the United Kingdom joined the European Economic Community in 1973 saw a period of strong growth in trade; the share of British goods exports to those members of the union rose from around 30% to a peak of 46% in 1999. In spite of further European integration, that share has largely flat lined, or perhaps fallen modestly, since then. This indicates that even increasing legislative integration with the European Union has not been able to offset the latter’s declining relative importance for British goods exports. (See Figure 11.)
As a result of these 3 factors – falling tariffs, the decline in manufacturing and Europe’s diminishing importance – we doubt that even the absence of a trade deal with the European Union would hurt the United Kingdom’s overall exports materially. The benefits of being in the European Union are smaller than they were a few decades ago, when a Brexit would have been a far bigger deal.
However, this won’t be the case for all sectors or regions. The average tariff that could potentially be imposed by the European Union under most-favoured nation rules is 4%, but this varies across sectors and food and drink product sectors would be hardest hit. In addition, the car industry would suffer from a 10% tariff on cars and a 5% tariff on imported components. (See Figure 12.)