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Abstract:
After the United Kingdom has left the European Union it remains unclear whether the two parties can successfully negotiate and sign a trade agreement within the transition period. Ongoing negotiations, practical obstacles and resulting uncertainties make it highly unlikely that economic actors would be fully prepared to a “no-trade-deal” situation. Here we provide an economic shock simulation of the immediate aftermath of such a post-Brexit no-trade-deal scenario by computing the time evolution of more than 1.8 million interactions between more than 6,600 economic actors in the global trade network. We find an abrupt decline in the number of goods produced in the UK and the EU. This sudden output reduction is caused by drops in demand as customers on the respective other side of the Channel incorporate the new trade restriction into their decision-making. As a response, producers reduce prices in order to stimulate demand elsewhere. In the short term consumers benefit from lower prices but production value decreases with potentially severe socio-economic consequences in the longer term.
