Three years after signing a post-Brexit trade deal with the EU, a survey by MakeUK reveals nine in ten UK manufacturers are still facing trade hurdles.
So what? Fixing UK growth won’t happen without addressing the elephant in the room. The “110 measures to grow the economy” laid out in the Autumn Statement contain just one mention of trade negotiations. Keir Starmer, who recently pledged to make growth the Labour party’s “obsession”, is pollyannaish about his ability to quickly secure a better agreement with the EU.
Supply-chain bottlenecks caused by the pandemic have mostly cleared, leaving a trail of evidence that points to structural decline in British trade. Both parties need to broaden their horizons beyond futile attempts to secure Free Trade Agreements with the US or China.
By the numbers:
- 17 – per cent decline in the volume of UK’s goods exports at the outset of 2023, compared with pre-Brexit levels.
- 11 – per cent decline in car exports, compared with a 4 per cent decline in the EU over the same period.
- 3.6 – per cent decline in “trade openness” (the sum of exports and imports as a percentage of GDP) since the first half of 2019.
- 0.04 – contribution to GDP from the UK’s trans-Pacific trade deal after 15 years of membership, according to OBR estimates.
Non-EU exports have also taken a hit. This is because of the UK’s advanced manufacturing sector – dominated by cars and chemicals – which depends on imports from within the bloc.
MakeUK, the manufacturers trade body, is urging the government to build on the wins of the Windsor Framework by smoothing trade with the EU – a market worth £260 billion to the 74 per cent of surveyed firms that export there.
A strategy for trade could also consider:
A UK-wide protocol. “Tweaks to the TCA, the side deal on Horizon, the delay to rules about electric vehicle rules of origin – these can be useful for specific industries and the broader relationship, but they’re not going to have a macroeconomic impact,” says Emily Fry, economist at the Resolution Foundation. One suggestion for achieving this could be to expand the Northern Ireland protocol by establishing equivalence agreements on matters like drug testing, allowing products to flow more easily across the border.
Becoming a services superpower. The UK exported £400 billion worth of services in 2022, accounting for a substantial 7 per cent of the global market. That share is likely to shrink in years to come, so the UK would be wise to capitalise on its head start by pioneering new “services trade agreements” (STAs) with the likes of Singapore, Australia, Canada, Switzerland and Japan. The content of STAs should focus on mobility of workers, mutual recognition of qualifications and digital agreements, rather than tariffs, the RF says.
Brexit 2.0. Like it or not, divergence with the EU is a continuous headache. As the bloc introduces new rules on carbon border taxes, plastic waste management and supply chain monitoring, firms are having to get to grips with the effects of what’s been dubbed Brexit 2.0. Failing to keep step with the EU’s Carbon Border Adjustment Mechanism, due to come into force in 2026, could mean carbon-intensive UK industries like steel get a nasty surprise. According to Energy UK, the Treasury is already losing out on almost £3 billion of revenue annually due to weak carbon prices.
Claims that the UK is “rejoining the EU by stealth” are overblown or wishful thinking depending on your view. But it’s ever more imperative for UK business that the government sets a long-term, diverse and modern trade strategy with multiple partners – including the EU.
