Negotiating a Turbulent World

From Brexit, Covid-19, climate change, to geopolitical tensions and conflicts, the international trade system is facing an enormous number of challenges and shocks.

The UK must navigate these challenges globally but also domestically: trade arrangements between UK nations have been transformed post-Brexit, giving rise to political and constitutional stress.

This challenging environment for trade and trade policy creates a pressing need for policy-responsive research. The projects under this theme will integrate different disciplines – law, economics, political science, and business studies – to ask:

  • What are the impacts of new obstacles to trade cooperation?
  • What are the effects of uncertainty?
  • How can the UK use trade policy to address global challenges?
  • How can the UK navigate – and lessen – trade frictions?

We will apply these broader questions within four more specific areas: climate change, deep regulatory cooperation through Free Trade Agreements, navigating uncertainty and trade frictions post-Brexit, and trade governance between the nations of the UK.

Research Projects

Using trade policy to address global challenges: climate

Climate Change and Trade Policy

The UK was the first major economy to commit to net-zero emissions by 2050 but UK climate regulation that impacts upon other countries may prompt trade retaliation. And the UK isn’t acting alone: it must respond to the dynamic actions of major trade partners, including the US and EU. Focusing on the areas of carbon pricing and subsidies, this project examines how the UK can navigate these challenges.

Research on behalf of the Climate Change Commission to inform its advice to Parliament on UK policy development for carbon pricing has attempted to shift how UK Government views its responsibility for emissions by refocusing policy options away from UK production to UK consumption. It has raised awareness of the central importance of trade policy to emissions reduction setting out and critically assessing policy pathways to integrate trade-related and climate-related objectives. Our research is providing policy and academic analysis of the legal, economic, and geopolitical implications of green subsidies.

Regulatory coherence and free trade agreements

Implementing regulatory coherence/cooperation across Free Trade Agreements

The UK’s legal and regulatory regime has been in transition since leaving the EU. Existing rules and regulations have been subject to new Free Trade Agreements with various countries. But not all countries have the same regulations: there is regulatory divergence between the EU and the US.

This project aims to understand how countries that have Free Trade Agreements with the EU and the US promote regulatory coherence/cooperation with both the EU and the US in the implementation of the agreements. The research involves a comparative study of digital trade (data governance) and food safety (Sanitary and Phytosanitary measures) provisions in Free Trade Agreements looking at Canada and Japan. In order to achieve inclusive trade policy, it is important for UK policymakers and the public to better understand how Free Trade Agreements are implemented in practice.

Trade and investment nexus

Since the 1980s, Japanese Multinational Enterprises have established operations with a complex network of foreign affiliates and investments in Europe. The UK’s departure from the EU radically changed the trade and investment policy environment in Europe impacting on Multinational Enterprises that trade with and within the UK and the EU. This project will look at how Japanese firms reacted to changes in trade costs and increased uncertainty resulting from a new trade policy environment - Brexit and the implementation of the Trade and Cooperation Agreement - when there are complex value chains present.

Although the UK Government has been promoting Free Trade Agreements in its post-Brexit trade policy, there has been a lack of understanding of the impacts of the UK’s new policy arrangements on international business. This research will assist policymakers by providing insight into how global firms reshape their activities, following changes in trade policies and trade costs post-Brexit.

Deep Trade Agreements and Domestic Non Tariff Barriers

Having left the European Union, the UK has the discretion to re-optimise a number of domestic regulations. However, any changes to existing regulations will inevitably impact upon the profitability of foreign exporters to the UK and the decisions of foreign firms to enter or exit the UK market, set prices and export volumes, and invest in new technologies.

This project will assess how historical commitments to domestic regulations made through trade agreements have impacted the choices of exporting firms. The findings will help inform UK policymakers of likely changes to the extent of competition within UK goods markets associated with different domestic policy commitments that the UK might undertake in future trade agreements.

Navigating Uncertainty and Trade Frictions

Long-lasting effects of trade policy

Trade elasticity is one of the most important parameters in international trade. It governs the response of trade flows to changes in trade costs, and it is required by studies looking at the potential effects of trade policy. Yet many of the available estimates of trade elasticity do not explicitly account for the time dimension. This makes it difficult to judge whether the available estimates of trade elasticity are suitable/appropriate for long-term analysis.
This project investigates the estimation of the trade elasticity and how it changes over time. Firm entry and exit in the export market can take time to fully adjust to changes in trade costs. In the short term, only a few firms respond to a change in trade policy. This means that the trade elasticity will be smaller in the short term, and larger in the long term.
Only by accounting explicitly for the time dimension in the estimation, it is possible to retrieve both the short- and long-run elasticity. As ex-ante evaluations of trade policy are mainly based on the comparison of long-term equilibria, it is important to have estimates of the long-run elasticity of trade. This project uses the 2018 US tariffs as a policy shock to estimate the trade elasticity and its evolution over time.