Last Friday marked the fifth anniversary of Brexit. The fact that it went by so unremarked tells us that most if not all of the catastrophic predictions about the economic harm that would be done to Ireland when the UK decided to leave the EU did not come to pass.
The paradox of Brexit – as far as bilateral British-Irish trade goes – is that trade between the two countries has increased substantially since Brexit took place on January 31st, 2020. In 2019, the last full year before Brexit, we exported €15.7 billion worth of goods to the UK and imported €20.3 billion. In 2023, the last full year for which trade figures are available, we imported €26 billion worth of British goods and exported €22 billion to the UK.
The balance of trade remains strongly in favour of the UK but it masks the deeper cost of Brexit to the UK. Trade with the UK accounted for 22 per cent of Irish imports and 10 per cent of exports in 2019. In 2023 it fell to 19 per cent of Irish imports and rose to 11 per cent of exports.
The UK has become a less important trade partner from the Irish perspective whilst the opposite holds for the UK as it faces barriers in other European markets.
The explanation for this relatively benign turn of events from an Irish perspective is, of course, the Northern Ireland protocol agreed as part of the UK’s exit agreement with the EU. It committed both sides to not imposing a hard border on the island of Ireland. It took six years and countless false starts to finally nail this down under the Windsor Framework in March 2023, but the upshot of it is that no hard border has translated into virtually frictionless and growing trade between the UK and Ireland.
The same cannot be said for the UK’s trade with the EU as a whole. Exports to the EU from the UK are down 27 per cent and imports are down 32 per cent between 2021 and 2023, according to a study by researchers at Aston University in Birmingham.
The report’s authors say the transition in UK-EU trade relations post-Brexit is not merely a short-term disruption but reflects deeper structural changes likely to persist.
They identify two big problems. The first is disruption to the UK-EU supply chain and the second is non-tariff barriers such as regulatory divergence. Both issues are addressed by the Windsor Framework, and the consequence for trade is obvious.
The Labour government is attempting to reset its relations with the EU, and the first big set-piece in this process took place on Monday when Keir Starmer travelled to Brussels to join a meeting of European leaders. He is the first prime minister to do so since the UK left the EU.
The next step is a UK-EU summit later in the year, possibly in April or May. The UK has already set several red lines in terms of what is on the table, including not rejoining the EU or a customs union or the return to freedom of movement.
At the same time it is seeking to increase trade with the EU. On the face of it this is not possible if it adheres to its red lines, but the Windsor Framework shows that it can be done if both sides want it enough. The UK remains outside the EU and its customs union but it is increasing trade with an EU member state, namely Ireland. There is de facto freedom of movement although it is called something else: the Common Travel Area.
Getting to this compromise required a great deal of effort on the part of both sides, and only came about because neither side could afford to let the process fail. It is an open question as to whether the same imperative exists in terms of an accommodation between the UK and the rest of the EU, but there are a number of factors that might create a window of opportunity.
The first is that Germany’s export-orientated economy is flatlining and the UK’s is not doing much better with anaemic growth and government borrowing at the limit of what it considers to be sustainable. The French economy is also forecast to shrink this year. More trade with each other is one of the solutions to the problems confronting Europe’s heavyweights, and everyone is clearly more in the mood to compromise than they were five years ago.
The other factor is the mercurial nature of the US president Donald Trump which was on display over the weekend. Having trigged worldwide panic by initiating what the Wall Street Journal dubbed the dumbest trade war in history on Friday, the US president had backed down by Monday in return for some fairly cosmetic concessions from Canada and Mexico on border controls. There is a good chance the fight he picked with China will end in a similar fashion.
But the key takeaway for European leaders is that they do not have a reliable partner in the United States for the next four years at least. This can only encourage the EU to cleave together and makes a Windsor Framework-style accommodation with the UK more likely.
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