On 31 January 2020, Great Britain will leave the European Union. What the economic relations with the United Kingdom will look like afterwards is still completely unclear. This uncertainty has been preoccupying British and European companies since the brexite referendum in June 2016.
However, German companies with trade relations with the UK have already anticipated some of the effects of the brexite. Germany’s exports to the UK slumped by over 11% overall compared with 2015. Imports of British goods, which have become much cheaper for German companies due to the exchange rate trend, have also fallen slightly over the past four years. Among the most important destinations for German goods exports, the UK dropped from third to fifth place. In terms of the most important countries of origin, the country even dropped out of the top 10, with only 3.4% of its imports now sourced by German companies from the UK.
Many companies have already adapted their value chains to the expected changes caused by the brexite. For example, German imports of chassis, engines and other parts for motor vehicles from the UK have fallen by almost a third since 2015. On the other hand, imports from other countries have increased, not only those from global production locations with comparatively low costs such as China, but also, in particular, from EU member states. A similar picture is also emerging in sub-sectors of the chemical industry (personal care products) and mechanical engineering (office machines). Suppliers from the Eastern European member states benefited in particular. Conversely, the pharmaceutical industry, for example, sought customers in other EU countries for its exports.
The duty-free nature of the EU’s internal market is thus proof of its attractiveness. The negotiators of the EU and Great Britain would therefore be well advised to agree on a free trade agreement so that a new customs border does not run through the English Channel from the beginning of next year.