A No-Deal Brexit could be good news for the US and China

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04/11/2019 | 02:31 pm
Brexit is getting messier by the day. Most investors are hoping for an amicable divorce, but according to a new report from the UN, China and the US could greatly benefit from the United Kingdom leaving the European Union without an agreement.

Almost three years after Britain voted to leave the EU, the Brexit saga will be able to continue until October 31, the new deadline set at an extraordinary European Council in Brussels on Wednesday April 10. The chaos of government is such in London, Theresa May's authority so degraded, that anything is possible.

Although a No-Deal Brexit has now been ruled out for the next few months, it is still a possible scenario. Indeed, if Mrs May is forced to quit and is replaced by a supporter of a more robust Brexit, Boris Johnson for example, the No-Deal could well be back on the table.

In a new report called “No-deal Brexit: the trade winners and losers”, the UN says that China and the US could greatly benefit from the United Kingdom leaving the European Union without an agreement. On the contrary, the EU and some of the United Kingdom's other trading partners, including Turkey, would lose a lot.

Under World Trade Organization (WTO) rules, a country cannot grant preferential treatment to a trading partner and must apply the same taxes to all, except in the case of a trade agreement.

If London leaves the EU without an agreement to protect its current trading partners, it “would increase relative competitiveness of major exporting countries, such as China or the United States, thereby eroding market-share away from less competitive countries.”

Jackpot for China

The biggest beneficiaries of a no-deal Brexit would be countries which currently face higher tariffs. China could pocket an additional $10.2 billion in exports to London, and the United States $5.3 billion. Japan could also expect to see its exports to the United Kingdom increase by some $4.9 billion and Thailand, South Africa, India, Brazil, Russia, Vietnam are also likely to make gains, according to the report.

Meanwhile, the EU and some of the United Kingdom's other trading partners, including Turkey, would lose out significantly. The UK market accounts for about 3.5% of world trade and last year the UK imported some $680 billion of goods from the rest of the world. More than half of these exports come from European countries: they risk losing nearly 35 billion dollars in the event of a no-deal.
 

Romain Fournier
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