>>Any punitive or vindictive response from the EU will tend to reinforce in the minds of Leave and Remain alike, that leaving was the right choice.

They're not stopping: future negotiation already is prefaced by declaration that EU's rules on free movement of people, are non-negotiable. The stakes are higher because Switzerland is outside the EU and is constitutionally obliged to control free movement after a binding referendum in 2014. Last month they announced unilateral proposals after the EU typically refused to budge. Interestingly, the EU suggestion to Switzerland was that it should vote again, correctly this time, whereas the UK is pushed to act on its vote immediately. Anyway, I suspect the Swiss and UK negotiators will be talking a lot to each other in coming weeks.

IMHO the issue is that neither the EU nor UK wants to disrupt existing trade, but the EU bluster seems destined to cause exactly that for the reasons you raise. E.g. I see that between 30% and 50% of new car sales in the UK, meaning in the high hundreds of thousands of vehicles, are European brands, mostly luxury. In a tit for tat exchange, the UK can skew the market to favor American and Indian brands like Jaguar with obvious effect in Germany and elsewhere. Similarly, the UK has plenty of other trading partners for foodstuffs and other imports, with NZ in particular able to send top quality produce around the world more cheaply than local versions. Currently the EU limits this with subsidies, tariffs and quotas, but faced with EU intransigence it's easy for the UK to declare its own "non-negotiable" clauses like dropping tariffs on Commonwealth friends, ostensibly to give the UK public back its freedom of choice. IOW if it descends into a tit for tat the UK will hurt, especially if lucrative financial services provided by London are scooped up by Germany, but the UK has plenty of alternative markets for other trade whereas the EU can't easily substitute its UK trade.

Finally, I see that Canada has a special deal with the EU including regular examination and ratification. Could that be a model for the UK?