The Trade Numerologist: Trade in free Catalonia

Tensions over the future of Catalonia could expose how much the Spanish economy depends on its vibrant Northeastern region, and underscore how much a specific region can dominate a country's trade with the rest of the world.

Spain has been a mess of protests, strikes and chaos since Catalonia's parliament declared independence in October. The government of Catalan was forced out, a judge ordered lawmakers to be jailed, and a Spanish court voided the declaration as "unconstitutional".

The situation is still volatile, but the prospect of a so-called Catalexit appeared to be more realistic after government leaders floated the notion of holding a referendum on changing its constitution to let provinces vote on independence. Foreign minister Alfonso Dastis said the decision to open that door would have to be "taken by all Spaniards."

If all Spaniards vote with their wallets, they would be smart to deny Catalonia. (As well as Basque Country, another freedom-seeking region.) Spain, which has only been a democracy since 1975, has suffered from a debilitating debt crisis, but is still the world's 17^th biggest exporter. In 2016, it exported$277.7 billionof goods, roughly the same as$277 billion in 2015, according to IHS Markit's Global Trade Atlas.And although Catalonia makes up only 16% of Spain's population, its four provinces -Barcelona, Gerona, Lleida and Tarragona -constitute 25% of exports. Barcelona tops the charts.

Top Spanish exporters, by province, 2016

Spain is not unusual. Manufacturers with export contracts tend to cluster around a few regions with good infrastructure, and most countries depend heavily on these places to drive their relationship with the rest of the world. By comparison, the biggest exporter among US states is California, home to 12% of America's people, but accounting for 19% of the $2.2 trillion in US exports in 2016. And that's without fully measuring the value of Hollywood movies.

Top US exporters, by state, 2016

Although Barcelona is famous for its Gaudi architecture, wine, and cured ham, it's also the hub of a manufacturing dynamo, which makes everything from cars and TV equipment to chemicals and clothes. SEAT, a former state Spanish carmaker now owned by Volkswagen, is headquartered in Catalonia, and Nissan also has a big plant nearby. Spain is the world's eighth largest car producer.

Top exports from Barcelona, 2016

It remains unclear what will happen to all these plants and factories if Catalonia becomes its own trading economy. The region has its own language and customs, and if those are fully enshrined, marketing, selling and shipping to and from Catalonia could get more complicated and expensive.

A free Catalonia would not automatically be a member of the World Trade Organization, and would face the higher tariffs that existed prior to WTO treaties. Spain might impose sanctions. The region might have to negotiate a new free trade deal with the European Union. That would be problematic: Two-thirds of Catalan exports go to the EU.

As with Brexit, what happens next will indicate how badly political divisions are capable of damaging the post-World War Two trading regime of more open borders and lower tariffs.

To be sure, the roots of this crisis are already economic. Many Catalonians blame their central government for a debt crisis and the stagnation of the Spanish economy. After rising in the second half of last decade, Spanish exports have stagnated since 2011.

Spanish exports, 2006-2016

The consensus among Western banks, consultants and investors is that Catalan independence would be a disaster. ING economist Geoffrey Minne wrote that "as with Brexit, we believe that any Catalexit would plunge the region into a long period of uncertainty and would most probably be negative for the private sector."

However, an independent Catalonia, if successful, could be a template for other regions in the EU, such as Flanders in Belgium, Scotland, or Lombardy in Italy, to declare their own independence.

There is one reason for investors to favor a strong Catalonian threat to secede: It could give the region more leverage in negotiating subsidies and support from the Spanish state.