Breinlich, H; Leromain, E; Magli, M (2026) Mind the break-up: when policy disrupts firms’ supply chains, Centre for Inclusive Trade Policy, Working Paper 036
" } ["group_access"]=> array(4) { ["apply_restriction"]=> bool(false) ["role_access"]=> array(2) { [0]=> string(13) "administrator" [1]=> string(9) "developer" } ["hide_links_public"]=> bool(false) ["hide_links_unselected"]=> bool(false) } ["clone_access"]=> array(1) { ["group_access"]=> array(4) { ["apply_restriction"]=> bool(false) ["role_access"]=> array(2) { [0]=> string(13) "administrator" [1]=> string(9) "developer" } ["hide_links_public"]=> bool(false) ["hide_links_unselected"]=> bool(false) } } ["use_contents"]=> bool(false) ["layouts"]=> array(2) { [0]=> array(2) { ["acf_fc_layout"]=> string(11) "layout_text" ["clone"]=> array(11) { [""]=> NULL ["group_bespoke"]=> array(3) { ["style"]=> string(7) "default" ["column_num"]=> string(1) "1" ["width_2_column"]=> string(8) "split-50" } ["group_column_1"]=> array(2) { ["text"]=> string(974) "This paper examines how supply-chain disruptions triggered by the UK-EU Trade and Cooperation Agreement (TCA) in 2021 affected UK firms and workers. Using matched UK microdata linking firm level goods and services trade to firm’s outcomes and employer-linked worker records, we document a sharp decline in firms’ imports of intermediate goods from the EU after 2021. This contraction is moderated for firms that also trade services, suggesting that joint sourcing of goods and services shapes resilience to trade frictions. In contrast, we find no statistically meaningful response of intermediate services imports to either the Brexit referendum or the TCA. We then show that firms more exposed to EU input sourcing experience declines in employment, sales, and the wage bill, with corresponding effects on workers’ hours and pay. These impacts are heterogeneous across occupations, with larger losses concentrated among lower-skilled roles.
" ["align"]=> string(7) "align_l" } ["group_column_2"]=> array(2) { ["text"]=> string(0) "" ["align"]=> string(7) "align_l" } ["_copy"]=> NULL ["group_column_3"]=> array(2) { ["text"]=> string(0) "" ["align"]=> string(7) "align_l" } ["group_core"]=> array(8) { ["layout_label"]=> string(9) "Abstract " ["tog_progress"]=> bool(false) ["tog_header"]=> bool(true) ["tog_padding"]=> bool(true) ["tog_background"]=> bool(false) ["tog_restriction"]=> bool(false) ["grp_lifecycle"]=> array(2) { ["datetime_start"]=> string(0) "" ["datetime_end"]=> string(0) "" } ["grp_identity"]=> array(2) { ["id"]=> string(0) "" ["class"]=> string(0) "" } } ["group_header"]=> array(3) { ["title"]=> string(22) "CITP Working Paper 036" ["intro"]=> string(0) "" ["align"]=> string(7) "align_l" } ["group_padding"]=> array(2) { ["top"]=> string(1) "1" ["bottom"]=> string(1) "0" } ["group_background"]=> array(2) { ["group_bg_colour"]=> array(2) { ["bg_colour"]=> string(7) "bg_none" ["bg_colour_pct"]=> int(100) } ["bg_image"]=> string(10) "bgimg_none" } ["group_restriction"]=> array(1) { ["role_access"]=> array(2) { [0]=> string(13) "administrator" [1]=> string(9) "developer" } } } } [1]=> array(2) { ["acf_fc_layout"]=> string(11) "layout_text" ["clone"]=> array(11) { [""]=> NULL ["group_bespoke"]=> array(3) { ["style"]=> string(7) "default" ["column_num"]=> string(1) "1" ["width_2_column"]=> string(8) "split-50" } ["group_column_1"]=> array(2) { ["text"]=> string(3639) "Over recent decades, global value chains have transformed production by linking firms across borders and improving access to specialised inputs and know-how. These global value chains can improve efficiency and productivity, but they can also leave firms exposed and vulnerable when trade conditions change including trade-policy shocks.
This paper examines the effects on UK firms and workers when Brexit altered trading arrangements between the United Kingdom and the European Union, through the introduction of the Trade and Cooperation Agreement (TCA) in January 2021.
The TCA maintained tariff- and quota-free trade between the UK and the EU, but also introduced a range of new non-tariff barriers in goods and services, including customs procedures, documentation requirements, and regulatory checks. Since many UK firms rely on EU suppliers for important inputs, the TCA provides a useful case study of how policy-driven disruptions to supply chains affect businesses and workers.
We combine several unique UK datasets linking firms’ international trade activities to information on business performance and employee outcomes. This allows us to track how firms’ imports, sales, employment, wages, and worker earnings evolved before and after Brexit. We find that the TCA lead to a substantial decrease in imports of intermediate goods inputs from the EU by UK firms, but the negative effects were mitigated if a firm was also importing services from the EU at the same time.
Our findings highlight an important difference between goods and services, with services intermediate imports not affected by the TCA. We then examine the consequences for firm performance and find that the Brexit referendum led to a decrease in firm-level employment consistent with the presence of uncertainty, anticipation, and exchange rate effects. This effect first appeared after the Brexit referendum in 2016 and intensified with the TCA.
The negative effects were more pronounced for firms that import both goods and services from the EU. Although these firms reduced their imports less than other firms, they suffered larger declines in employment and sales. This suggests that they faced greater difficulties adjusting their supply chains and were therefore forced to absorb higher costs.
We also investigate how workers were affected. Employees working for firms with greater exposure to EU supply-chain disruptions experienced reductions in working hours and earnings. The effects were again stronger for workers employed at firms exposed to both goods and services disruptions.
The effects were not evenly distributed across the workforce. Younger workers, women, and workers in lower-skilled occupations experienced larger negative impacts than other groups. Regions were also exposed differently. Overall, the most exposed were the South East, and the Midlands (East and West). Average wage declines were concentrated in the North East and the West. However, in both regions, these reductions are largely offset for firms that also trade services.
Overall, our study provides evidence that policy-induced trade barriers can have substantial consequences beyond trade flows themselves. The findings also demonstrate the importance of considering goods and services together when assessing the resilience of modern supply chains. These results suggest that current initiatives such as the planned reset in the EU-UK trade relationship could yield significant benefits, if they manage to offset the negative effects of the TCA.
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