BRUSSELS – When it comes to bilateral trade, gains and losses are distributed asymmetrically between the larger and the smaller economy. In the best of times, that would be bad news for the United Kingdom as it seeks new trade deals with the European Union and others. And these are not the best of times.
Economic theory predicts that erecting new trade barriers hurts both sides. But economic principles also suggest that the larger of the two economies is likely to lose less.
In the case of a tariff, for example, lower demand from the larger economy will tend to push down the prices of the goods that it imports. The smaller economy is unlikely to have enough of an impact on overall demand for the goods it imports, and thus on their prices.
The advantage of the larger economy is even greater when it comes to non-tariff barriers, which often result from differences in regulations and standards among trading countries. In most cases, the smaller country must simply accept the larger one’s rules.