EU-UK global value chain trade and the indirect costs of Brexit

Rita Cappariello (), Milan Damjanovic (), Michele Mancini and Filippo Vergara Caffarelli
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Milan Damjanovic: Bank of Slovenia

No 468, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: Production networks in the European Union (EU) and the United Kingdom (UK) are highly integrated and Brexit poses a threat to supply and demand linkages across the Channel. In a world of Global Value Chains (GVCs), tariffs might be more harmful than in a world where trade is purely direct. In this paper we highlight the features of GVC-trade between the EU and the UK, disentangling the complex network of bilateral EU-UK value-added flows. Assuming that following Brexit the UK adopts the same Most-Favoured-Nation tariff schedule as the EU, we compute the direct and indirect costs of these tariffs, taking into account the EU-UK GVC-trade patterns. Tariffs would add almost 1 percentage point to the cost of manufacturing inputs in the UK, while the corresponding input cost in the EU would be only marginally affected, despite some heterogeneity at the country-level.

Keywords: Brexit; tariffs; global value chains (search for similar items in EconPapers)
JEL-codes: D57 F13 F15 (search for similar items in EconPapers)
Date: 2018-11
New Economics Papers: this item is included in nep-eec, nep-int and nep-tid
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Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:bdi:opques:qef_468_18

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