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Study: No-deal Brexit could cut UK-EU trade by up to 50%

Trade between the U.K. and the European Union could be reduced by up to 50% in the long run if the country leaves the bloc without a trade deal, according to a research by the German Economic Institute.

The latest research published Oct. 9 comes amid increasing uncertainty over Brexit and the trading environment after the U.K. leaves the EU in March 2019.

According to research from the German Economic Institute, or IW, a hard Brexit would bring high costs on both sides in the short run, with the U.K. and Germany absorbing the largest tariff burden. "Brussels and London can generate tariff revenues of €5.1 billion and €10.5 billion, respectively," IW noted.

The tariff burden would mainly affect the automotive industry. Germany's carmakers would pay one-fifth of all the tariff revenues collected by the U.K.; the British automotive industry would have to pay one-third of all duties collected by the EU.

"Additionally, in the short run, [nontariff barriers] might imply an additional burden of up to 14.6 billion for U.K. companies and up to 25.8 billion for EU companies," the report said.

IW said that with the effects of newly introduced tariffs on trade, negotiations should not only be aimed at avoiding a hard Brexit but should also explicitly seek a customs union.

"This leaves enough room to maneuver in designing the free trade rules and thus takes into account the Brexiteers' red lines, which relate to the free movement of labor, rather than to customs duties," IW said. "In this regard, any transition period should maintain the customs union."

IW also suggested that nontariff barriers to trade should be prevented.

"All in all, in view of the increasingly urgent preparations and adjustments of companies on both sides, clarity is desperately needed," IW said.