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Current Accounts: The Hinrich Foundation Trade Podcast

Salt and horses: Brexit and British prices


Published 21 February 2023

In this first edition of Current Accounts, the Hinrich Foundation's newly launched trade podcast, our Research Fellow Stewart Paterson speaks with Jan David Bakker, of Bocconi University, on the rise of non-tariff barriers to trade, their impact on economic welfare, and the nature of data analysis on traded goods from horses to salt.

Tune in to the first episode of the Hinrich Foundation’s podcast series here:

The United Kingdom's first tentative steps into Brexit, after voting to leave the European Union in mid-2016, triggered a prolonged negotiation between the two parties that led eventually to the Trade and Cooperation Agreement (TCA) between the two sides coming into effect in January 2021. TCA allows tariff-free and quota-free trade between the two parties, however, since the UK is no longer in the European single market, and no longer in the Customs Union, some previously non-existent non-tariff barriers to trade have come into operation. This has given rise to an opportunity for trade economists to examine the impact of trade legislation and particularly non-tariff barriers on economic welfare.

The recently published paper by the Centre for Economic Performance titled- "Non-tariff barriers, and consumer prices: the evidence from Brexit" co-authored by Nikhil Datta, Richard Davies, Josh De Lyon, and Jan David Bakker, takes a data-driven approach to unpacking the impact of non-tariff barriers on consumer prices. Jan David Bakker, co-author of the paper and Assistant Professor of Economics at Bocconi University in Milan talks to Stewart Paterson, Senior Research Fellow at the Hinrich Foundation about the findings of the paper and the impact of Brexit on British consumers.

Among other issues including how geopolitics and globalization have driven food prices, and how specific classes of products drive non-tariff barriers, the discussion also focuses on the nature of trade data analysis.

In the discussion, Bakker and Paterson talk about the granularity of UK data versus the readily available international trade data provided by the United Nations Comtrade system, commonly used by economists. The challenge in aligning the datasets drill down to singling out commodities from salt to domesticated horses, and how that has a bearing on economic observations.

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Excerpt From The Full Transcript

Salt and horses: Brexit and British prices

Stewart Paterson:

Hello, and welcome to Current Accounts, the Hinrich Foundation's Trade Podcast, I’m Stewart Paterson. In today's episode, we are going to be talking about non-tariff barriers to trade, consumer prices and their impact on economic welfare. And we are going to do that through the prism of Brexit. For those of you who are not so familiar with UK-EU trade relations, in mid 2016, the United Kingdom voted to leave the European Union. This was followed by a prolonged negotiation between the two parties that resulted in the UK leaving the EU at the beginning of 2020, but under a transition agreement that meant that effectively nothing changed until January 2021, when the Trade and Cooperation Agreement that the two parties negotiated came into operation.

From a trade perspective, the important thing about the TCA was that tariff-free and quota-free trade between the two parties continued as before, but because the UK was no longer in the European single market, and no longer in the Customs Union, some non-tariff barriers to trade came into operation that were not there previously. Now, obviously, this is quite exciting for trade economists potentially because it provides a kind of laboratory-type environment in which to examine the impact of trade legislation, and particularly non-tariff barriers on economic welfare - at least that laboratory-type environment might have existed, if it was not for the global pandemic, and the Ukrainian war, which obviously very much muddled the data and creates a lot of noise that we need to try and cut through.

So, it is against that backdrop that a very interesting paper has been published by the Centre for Economic Performance called "Non-tariff barriers, and consumer prices: the evidence from Brexit". The paper has been authored by Nikhil Datta, Richard Davies, Josh De Lyon, and Jan David Bakker, who is an Assistant Professor of Economics at Bocconi University in Milan, and he joins me in the studio today. Welcome, Jan.

Jan David Bakker:

Welcome, Stewart, thanks for having me.

Stewart Paterson:

Well congratulations, firstly, on a very interesting paper, and a paper that certainly in the UK, and I suspect maybe in the European press too, has attracted a lot of publicity and attention. Perhaps the journalists have not always picked up on the nuances of your findings, but certainly, it has been received very well, and it is a highly topical conversation and discourse that you have been undertaking. Perhaps I could just start by asking you what your motivation for the study was, what you set out to try and analyse, and how that shaped the design of the study?

Jan David Bakker:

Of course Stewart, so the starting point for us was really trying to understand what Brexit does, and what the changes in trade policy resulting from Brexit are, and how they affect the British consumer. So, having been in the UK for a number of years during the period leading up to the referendum, and then the period after the referendum during those tumultuous times when the new relationship was being negotiated, that was really the key public policy topic of the time. We were hoping to contribute to our understanding of what the effects of Brexit are on the UK economy.


The transcript above is an excerpt of the podcast. The full transcript is available for download.

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Author

Stewart Paterson

Stewart Paterson is a Senior Research Fellow at the Hinrich Foundation who spent 25 years in capital markets as an equity researcher, strategist and fund manager, working for Credit Suisse, CLSA and most recently, as a Partner and Portfolio Manager of Tiburon Partners LLP.

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Jan David Bakker is an Assistant Professor in the Department of Economics at Bocconi University and a Research Associate at the Centre for Economic Performance and the Institute for Fiscal Studies.

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