The UK would pay tariffs on goods and services it exported into the EU, but since the UK would pay ‘most favoured nation’ rates, that would prohibit either side imposing punitive duties and sparking a trade war.
These WTO tariffs range from 32 per cent on wine, to 4.1 per cent on liquefied natural gas, with items like cars (9.8 per cent) and wheat products (12.8 per cent) somewhere in between.
John Springford, an economist with the Centre for European Reform, the total cost of those tariffs would be large, ranging from a 2.2 per cent of GDP (£40 billion) to 9 per cent.
Business for Britain, which campaigns for exit, estimates that at worst, tariffs would cost British exporters just £7.4 billion a year and says the UK would save enough on EU membership fees to be able to compensate exporters for that.
Damian Chalmers, professor of European Union law at the London School of Economics, says the bigger threat to the UK exports would not be from WTO tariffs, but other EU states imposing new regulations and other “non-tariff barriers” to keep UK services out.
(What about the UK striking trade deals with other big economies?)
This is eminently possible, but is likely to take time. Having ceded responsibility for trade policy to the EU, the UK civil service may lack the capacity to strike major trade deals quickly.
It is also possible, as David Cameron argues, that other countries will want to see what terms the UK receives in Europe before committing to their own deal, potentially leading to further delays.
A larger question will be about the UK’s bargaining power with countries whose domestic politics push them towards protectionism, not free trade. Professor Chalmers warns that striking trade deals with major economies such as the US, China and India would be “tough” for Britain.
Brexit campaigners note that the EU has so far failed to secure such free trade deals, and suggest the UK would have a better chance negotiating in its own right with politicians in Washington, Beijing and New Delhi.