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18 July 2022

Michael Gasiorek is Director of the UK Trade Policy Observatory and Co-Director of the Centre for Inclusive Trade Policy. He is Professor of Economics at the University of Sussex Business School.

Boris Johnson was elected on the slogan and promise of ‘Get Brexit Done’. It is perhaps somewhat ironic, then, to see disagreement between the contenders to succeed him as to whether Brexit has actually yet been done.

Ironic, but not surprising. It is not surprising because, aside from encapsulating the formal leaving of the EU, Brexit has always meant different things to different people. Just as there were myriad different forms of possible departure from the EU, there are myriad ex-post interpretations of whether or not Brexit has been (truly) achieved. Brexit is in the eye of the beholder, so to speak.

An absolutely central feature of Brexit – and of the deal struck with the EU – was to grant UK independence over the formulation of trade policy. It is striking therefore, in watching the televised debates between the candidates (which include a former Secretary of State for Trade, and a current Trade Minister) vying to replace the Prime Minister[1], that none of them have chosen to meaningfully engage with and discuss trade policy. I exaggerate a bit – we have heard several times from Liz Truss that she has signed numerous trade deals.

Why does ignoring trade policy matter? Listening to the debates, one might think that all of the current significant economic issues being discussed are purely domestic matters. From the cost-of-living crisis to low economic growth (note that levelling up and regional disparities have barely had a mention), the policy choices dominating the debates are whether or not to raise or lower taxes, or remove regulations. These challenging issues are not, however, purely domestic matters.

  • Trade and foreign investment are key elements of our prosperity. In 2019, exports of goods and services accounted for 31% of output, though notably by 2021 this had declined to 27%. In addition, imports accounted for just over 28% of UK demand in both years. Taken together the value of UK trade is close to 60% of GDP.
  • There are nearly 7 million jobs linked to – and supported by – UK exporting activity, which accounts for over 20% of UK employment[2].
  • UK productivity performance has been weak. Work by the Productivity Institute points to the substantial fall in the growth of UK output per hour between 2010-19, with only Italy’s performance out of the G7 economies being worse[3]. Moving forward, the Resolution Foundation estimates that UK productivity will be 1.3% lower by 2030 than it would have been in the absence of Brexit[4].
  • There is a wide range of empirical evidence showing that trade in goods and services is a potentially important driver of economic growth and productivity change. And when I say ‘trade’, I am not just referring to exports and exporting more; imports are at least as – if not more – important for consumers and for firms’ intermediate inputs.

So how has the UK been doing?

  • By the end of 2021 evidence suggests that UK GDP is 5.2% lower, investment is 13.7% lower, and goods trade is 13.6% lower than if the UK had not left the EU[5].
  • Imports from the EU have particularly slumped across most sectors, and exports to the EU in certain sectors such as textiles and food products have also declined heavily[6].
  • There is evidence from trade data and surveys suggesting that the impact on UK trade has been particularly negative for small- and medium-sized enterprises[7].

Given that a key Brexit ‘dividend’ was sovereignty over trade policy, let’s hear more from the candidates on this.

Speaking as a trade economist, if I had my one question to ask the candidates, I would ask “what do you want from the UK’s independent trade policy and how will this help the UK?” A poor answer would be to say “more trade is good”. We need to know why the candidates may consider it to be good and under what circumstances, how to achieve this, and why it could help with the pressing problems faced by UK consumers, workers, firms and regions.

And back to the specific subject of Brexit and whether or not it is done, it is worth remembering two important things. First, and in the immediate short term, the issue of the Northern Ireland Protocol is manifestly not resolved, whether or not the proposed Northern Ireland Protocol Bill goes through the UK Parliament. Second, and in the longer term, the Trade and Cooperation Agreement (TCA) with the EU calls for a joint review of the TCA with the possibility of renewal, revision, or termination five years after entry into force of the agreement, and every five years thereafter[8]. These issues concern the bulk of UK trade and highlight that thinking constructively about UK trade policy is an imperative.


Footnotes

[1] The debates took place on Friday 15th and Sun 17th July, and included Kemi Badenoch, Penny Mordaunt, Rishi Sunak, Liz Truss and Tom Tugendhat

[2] Source: Data for 2018, Trade in Employment database, OECD, https://www.oecd.org/sti/ind/trade-in-employment.htm

[3] https://www.productivity.ac.uk/wp-content/uploads/2021/12/WP015-Politics-of-Productivity-FINAL-131221.pdf.

[4] https://www.resolutionfoundation.org/app/uploads/2022/06/The-Big-Brexit_.pdf

[5] https://www.cer.eu/publications/archive/policy-brief/2022/cost-brexit-so-far

[6] https://blogs.sussex.ac.uk/uktpo/publications/post-brexit-ii-trade-in-goods-and-services/

[7] See the work of Thomas Sampson on trade flows (https://cep.lse.ac.uk/pubs/download/cp627.pdf), and surveys from the British Chambers of Commerce, and the Federation of Small Businesses.

[8] See Peter Holmes’ recent blog ‘What we can do to fix Brexit and the Irish Border crisis’ (https://blogs.sussex.ac.uk/uktpo/2022/05/23/what-we-can-do-to-fix-brexit-and-the-irish-border-crisis/)

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The opinions expressed in this blog are those of the authors alone and do not necessarily represent the opinions of the University of Sussex, UK Trade Policy Observatory or Centre for Inclusive Trade Policy. 

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One Comment

  • Mr Keith Macdonald says:

    Excellent piece. The fundamental fact is that external trade is about a quarter of the UK economy. By definition, no country can be sovereign or independent on trade so nationalistic nonsense is exposed.

    We have the same problem to an even greater extent in |Scotland where about 30% of our output is sold to the rest of the UK. If we left, we would need to negotiate the closest possible economic relationship. This simple fact is completely ignored in Scotland’s debate on “independence”.

    One more point – the larger country or grouping must have the advantage in trade negotiations because that trade is proportionately less important to it and it can more easily walk away. This is surely the real story of the Brexit negotiations. It would be an actual tragedy for Scotland if it ever came to the crunch.

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