In Brief

What Would a No-Deal Brexit Look Like?

The United Kingdom is formally set to leave the European Union on January 31, but negotiations continue to determine what that means for UK-EU relations.

What’s happening?

Prime Minister Boris Johnson, a staunch Brexiteer and a leader of the 2016 referendum campaign, will have just under a year to negotiate the terms of the United Kingdom’s relationship with the European Union, which it formally leaves on January 31.

No Deal Brexit Supporters
Supporters of Brexit at a “Leave Means Leave” rally in London. Simon Dawson/Reuters

Johnson’s cabinet has promised it will strike a trade deal with Brussels by the end of the year, and has ruled out extending the transition period. But experts are skeptical that trade negotiations can be completed so quickly, and warn that a failure to reach a deal during the transition period would have wide-reaching consequences.

Why would a no-deal Brexit matter?

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First off, some economists worry that the British economy would sharply contract. In November 2018, the Bank of England predicted that the effects of a “hard Brexit” would rival those of the 2008 financial crisis. There are several specific pain points:

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Trade. Leaving without a deal would mean immediately leaving the common market, which guarantees that all of the UK’s trade with EU members faces no tariffs or regulatory checks. British exports to the EU would face most-favored-nation-level tariffs, which average just under 6 percent but are much higher on certain goods, especially agricultural products.

Tariffs chart

There would also be new border checks for both exports and imports. This could result in higher prices, border backlogs and delays, and even shortages of staples, such as food and medicine. When the prospect of no deal arose in the past, some British companies and citizens began stockpiling goods. Some of these concerns were addressed in Johnson’s withdrawal agreement with Brussels. For example, no deal during the transition period would no longer lead to a so-called hard border between Northern Ireland and the Republic of Ireland, but rather to customs checks on goods traversing the Irish Sea.

Trade

Investment. Several international firms have shifted their investments from the UK to elsewhere in the EU, fearful that supply chains will be disrupted. Capital invested in the other twenty-seven members has grown by 43 percent since 2016, while the UK has seen a 30 percent drop. Aerospace giant Airbus is a prominent example, vowing to direct funds and jobs away from the UK if there is no trade deal. Such moves could put tens of thousands of British jobs at risk. London’s role as a world finance leader could also be in jeopardy if financial firms relocate to the continent. Financial services provide 11 percent of the UK’s tax revenue; 44 percent of their exports go to the EU.

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Migration. The status of the 3.2 million EU citizens living legally in the UK, as well as that of the 1.3 million British citizens living in EU countries, has become a major controversy. Politicians have promised almost all will be granted “settled status” after Brexit, but anxiety remains. Some Europeans have only been granted “pre-settled status” in Britain, and some British expats bemoan the fact that even with legal status in another EU country, they will lose their freedom of movement within the entire bloc.

Officials also worry about other potential security ramifications; a former head of British intelligence, Eliza Manningham-Buller, has argued that the UK will be less equipped to handle terrorism and Russian aggression, and UK police have warned that the loss of access to EU crime databases could undermine their efforts.  Proponents of Brexit argue that these fears are overblown.

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What’s next?

The next eleven months will largely determine whether the UK will maintain close regulatory and trading ties with the EU or will prioritize trade with other partners such as the United States or the Commonwealth of Nations.

Much of the pace of negotiations will be set in Brussels and will play out according to a detailed timeline. On February 25, the EU will agree to a mandate for the coming trade negotiations. By July 1, the two sides aim to reach an agreement on fisheries. And while the transition period officially ends on December 31, the last European Parliament plenary session that can sign off on a trade deal convenes on November 26, further shortening the amount of time Johnson has to negotiate. If the two sides have not reached an agreement by then, and if the prime minister sticks to his promises and refuses an extension, a hard Brexit could once again be in the cards.

This updates a previous article from 2019.

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