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3/8/16

Brexit: Britain Beware: The Power of Trade - Holger Schmieding

Nobody knows for sure. A divorce can be smooth, causing only modest damage. Or it can be messy, inflicting serious pain on everybody except the lawyers. It would all depend on the policy choices taken by both sides following a vote for Brexit on June 23, 2016.

From 1958 to 1972, the UK stayed outside the European Economic Community (EEC). As the EEC members traded more with each other, the UK lost market share fast.

The ratio of German imports from the UK relative to its imports from fellow EEC members fell by more than half.

Trade diversion hurt the UK so badly that it began to ask to be let into the EEC five years after staying aloof in 1958.

After rejecting two UK applications to join in 1963 and 1967, the EEC finally opened its door to the UK in 1973. As a result, the UK’s share of the German import market rebounded strongly (see cha

Enlarge Trade diversion: German imports from UK before and after UK joined the EEC in 1973.
















Beyond the dismantling of trade barriers, a decline in the real effective exchange rate of sterling after 1971, UK austerity under the 1976 IMF program, and rising UK exports of North Sea oil also helped that trend.

Read more: Britain Beware: The Power of Trade - The Globalist

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