EU27 and the UK: Product Dependencies and the Implications of Brexit

The COVID-19 crisis has shown the importance of supply chain diversification to mitigate the negative effect of unexpected supply shocks; the decision of the UK to leave the EU poses additional challenges to foreign trade. Irrespective of the outcome of the Brexit negotiations, trade costs between the UK and the EU will increase as a response to Brexit and cause disruptions in trade relations. In this report, the authors take a detailed look at goods that are dependent on few suppliers and show only a few products are imported solely from the UK, representing a negligible share of imports. With the exception of Ireland, Malta and Cyprus, all other EU27 countries import less than 10% of goods with five or fewer suppliers from the UK, with those goods otherwise mostly sourced from other countries inside the EU27. This suggests that it might be easier to substitute these goods across countries, however, for German-UK trade, most of these goods are classified as intermediate goods, implying additional stress on supply chains caused by Brexit. For the UK, 64% of the goods that are dependent on five or fewer suppliers come from countries within the EU and nearly 54% of those goods are classified as intermediate goods, meaning that Brexit might cause a significant increase in trade costs for the UK. Given the extent of trade relations between the UK and the EU27, the results unfold the far-reaching consequences of Brexit for the UK economy and the importance of a trade agreement that ceases trade uncertainty and minimizes the costs of Brexit.