LONDON — Global trade is changing fast, and historic bonds are being broken.
On Monday, President Donald Trump pulled the United States out of the Trans-Pacific Partnership trade deal to lower tariffs for 12 countries around the Pacific Rim, including Japan and Mexico but excluding China.
Meanwhile the UK looks set to exit Europe’s single market — a trading bloc of 28 nations including Britain — as part of its withdrawal from the European Union.
Prime Minister Theresa May told an audience of foreign diplomats and ambassadors that she would terminate Britain’s membership of the free-trade area in return for full control over immigration from the European Union.
While closer control of immigration might play well politically, it won’t pay the bills. The plan for a “hard Brexit” will lower UK incomes and cost up to 10% of GDP over 15 years, according to analysts at Bank of America Merrill Lynch.
This is because the European Union is the deepest and strongest trading bloc in the world, as highlighted by this map from trade analysts at the World Bank and the World Trade Organisation. Hard Brexit would cut trade between the UK and the EU by 28%, the analysts said.
Here’s the map:
“The data indicate that the EU is the deepest trade agreement among the 279 currently in force covering 44 policy areas ranging from standards to movements of capital, to labour mobility,” the analysts wrote in a post on policy site Voxeu.org.
Leaving this group will inevitably have knock-on effects for UK trade with the EU bloc.
“We find that bilateral UK-EU trade declines under all scenarios and that this drop is sharper the lower the depth of the post-Brexit arrangement relative to the depth of the EU agreement,” the analysts said. “In terms of value added trade, the decline ranges from 6% under the ‘softer’ Brexit scenario to 28% under the ‘harder’ scenario. The largest declines are for UK services and global value chain trade.”
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