Brexit is, to place it mildly, an uncommon occasion.
However there are precedents for some points of it.
New Zealand gives one instance. The nation confronted a sudden, antagonistic change in entry to a key export market when the UK joined the European Financial Group (EEC), because it was then, in 1973.
When nations have modified their commerce preparations by negotiation in current a long time it has normally been to scale back limitations to cross-border commerce.
We do not know precisely what Brexit will carry, nevertheless it definitely may – or maybe we must always say in all probability will – imply extra limitations to commerce between the UK and EU.
And it may all occur in a short time, particularly if the UK does depart the EU with no Withdrawal Settlement in March subsequent 12 months.
There aren’t many precedents for that.
What occurred to New Zealand in 1973?
New Zealand is a case that does have some relevance.
Within the aftermath of British accession to the EEC it misplaced preferential entry to the UK market, one thing which was a legacy of its historical past within the British Empire after which the Commonwealth.
The Financial institution of England took an in depth have a look at the instance when it tried to evaluate the possible financial penalties of assorted Brexit situations.
Earlier than the UK joined the EEC in January 1973, it was the vacation spot for 30% of New Zealand exports, amounting to eight% of the nation’s financial exercise or GDP.
However from that time, New Zealand exporters confronted the EEC’s frequent exterior tariff. Agricultural exports are essential to New Zealand – most famously lamb, though dairy produce is now the nation’s greatest export earner. Meals gross sales additionally needed to deal with competitors from subsidised European farmers.
Whole export earnings fell within the first two years, funding grew extra slowly after which declined from 1975. The economic system went into recession in 1974.
After all New Zealand was not the one economic system to have a torrid time within the mid-1970s. There was a world recession linked to a fast in rise in oil costs and disruptions to the worldwide forex system.
So was something totally different about New Zealand?
The Financial institution of England in contrast New Zealand with Norway and Austria. They’d related vitality import wants (this was earlier than Norway turned a significant oil producer) however they weren’t uncovered to the fallout from the UK’s accession to the EEC.
The Financial institution says GDP development didn’t fall as far in both nation and nor did inflation rise so sharply.
The Financial institution concludes that the proof, “may due to this fact recommend the UK’s accession to the EEC itself had a major impression on the New Zealand economic system”.
How did the nation reply to the turbulence?
Finally New Zealand did discover new markets. However general financial development didn’t return to pre-1973 fee till the 1980s.
At this time, the UK stays an necessary export vacation spot for New Zealand. Nevertheless it now comes behind Australia, China, the US and Japan. The newest figures present the UK accounting for 4.4% of New Zealand’s exports of products and companies.
Germany can be an necessary marketplace for New Zealand, however for essentially the most half its exports now go to nations in Asia or on the Pacific rim, nations which are comparatively shut (definitely nearer than the UK).
What are the teachings for the UK?
New Zealand is only one case, so it must be seen with some warning.
Nevertheless it definitely does recommend that the sudden lack of preferential entry to an necessary market can have very vital financial prices.
After all there are variations between the conditions confronted by the UK after Brexit and New Zealand within the 1970s.
The share of exports going through doable challenges is bigger for the UK (47% of products exports final 12 months) than for New Zealand in 1973 (30%). Together with companies brings the UK determine right down to 43%
The markets that New Zealand turned to after 1973 are nearer geographically than the UK, the place companies confronted new restrictions. Within the case of Brexit the other might be true. Any markets that may offset any setback in commerce with the EU might be additional away. Which will make it more difficult.
The proof does recommend that nations are inclined to commerce extra with economies which are nearer or bigger. It’s recognized in economics because the gravity mannequin and it has been described as “one of many most sturdy empirical findings in economics”.
That stated, there are economies exterior the EU which are at present rising quicker and are giant, together with the US, which is already an necessary commerce associate for the UK. China and India are giant and rising strongly though they’re at present a lot much less vital as British export markets.
And commerce limitations now are usually decrease than they had been in 1973.
Does distance nonetheless matter for financial development?
There are additionally some economists, notably Prof Patrick Minford of Cardiff College, who argue that the gravity mannequin “doesn’t match the UK’s commerce historical past in any respect effectively“. That, nevertheless, is a minority view.
Some argue that promoting companies is much less affected by distance – that the “gravity impact” isn’t so sturdy as is the case for items. To the extent that’s true, it may imply the truth that new markets for Britain might be extra distant won’t be fairly so vital. That stated, there may be loads of help for the concept “gravity” does matter for companies.
The UK right this moment is clearly a considerably totally different economic system in contrast with New Zealand’s greater than 40 years in the past. The expertise nonetheless gives some pointers about one of many points the UK may face exterior the EU.