We identify firm entry and exit from exporting to the EU using each firm’s history of customs transactions, which we then aggregate to each of the 8,000 different types of products that the UK exports to the EU. the EU’s third country tariff schedule with tariff data sourced from the European Commission’s TARIC database . Using a difference-in-differences iran rcs data econometric model we are then able to identify the impact of the increase in threat point tariffs on firm exporting decisions in 2016 relative to 2015 (first difference) for products facing different threat point tariffs (second difference).
In figure 1 we show the distribution of UK exporters to the EU across different types of products and by their different exposure to threat point tariffs.
Of the near 350,000 UK to EU firm-product exporters in 2015, 22% face no uncertainty from higher threat point tariffs in the event of a no deal scenario as the EU offers tariff free access to all third countries under its WTO commitments. However, over 60% of exporters would face low and medium tariffs (between 0 and 10% tariffs) in the event of no deal, whilst 15% of exporters would face high or extreme tariffs (over 10%).
Our econometric analysis finds that the increase in trade policy uncertainty decreased firm entry into and increased firm exit from exporting to the EU for UK-based firms following the result of the Brexit referendum in 2016. The impact is largest for products facing higher threat point tariffs, suggesting that UK firms placed positive probability on the likelihood that negotiations could break down and leave some firms facing substantially higher tariffs on exports to the EU.