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Global Trade: The world may be Britain's oyster, but does it contain a pearl?

Posted by: Dr Jamie Morgan and Dr Silke Trommer

A great deal has been written about Brexit, including in a special issue of the journal Globalizations edited by Professor Heikki Patomäki and Jamie Morgan. These analyses are developed and extended in the forthcoming Routledge edited collection on Brexit, which includes work by Silke Trommer. Brexit continues to be a source of significant concern across all aspects of society and the economy. Despite continuous media focus on the subject since the original referendum was called over a year ago, the general population are only now becoming, or being made, genuinely aware of how complicated the process of exiting the EU is. The decision was presented as a simple one: in or out? However, the consequences of that decision are far from simple. There are many issues of context that need to be considered. Stating them is not ‘talking Britain down’, but rather recognizing real constraints.

Trade may not be the issue that decided the Brexit vote, but trade has become a decisive issue in the wake of the vote. Many statistics are being thrown around at the moment. For example, approximately 44% of Britain’s exports are to the EU, and just over 50% of Britain’s imports are from the EU. Since Britain is still a member this trade occurs within the EU as a trading bloc: a single market and customs union.

Europe Venn Diagram

Source: HM Government, 2017: p 48

Given the scale of Britain’s trading relationship with the EU, it is unsurprising that there is currently a great deal of focus in the press on the future of that relationship. The dominant questions are: will we trade more or less with the EU and on what basis?

There is, however, less emphasis on realistic assessment of trading potential with the rest of the world. This potential currently functions as a background issue in various ways: more trade beyond the EU may offset the possible declines in trade with the EU, and leaving the EU ‘liberates’ Britain to pursue more effective trade relations elsewhere. Concomitantly, the British government positions its trade policy in general terms as a return to the country’s great tradition of ‘free trade’. Liam Fox, as Secretary of State for International Trade, with a remit beyond the EU, has made particular reference to a ‘post-geography’ trading world.

So, one important issue of context concerns the actual scope for expanding trade relations beyond the EU. Bilateral trade deals between Britain and any given other country are an alternative to trading directly under the auspices of multilateral trade agreements, such as World Trade Organization (WTO) rules or as a member of a trade bloc. However, bilateral trade agreements cannot simply ignore the existence of other agreements because every country, and increasingly so, is engaged in many kinds of trade with many countries. Corporations' goods and services are sourced from and destined for many places across global production networks. Leaving the EU means leaving a large powerful negotiating entity, but it does not clearly empower Britain as a negotiator. It adds an additional layer of complexity to ensuring compliance with other sources of rules and regulations. It also adds the problem of ensuring compliance with the bilateral agreement. ‘Free’ does not mean ‘free’, at least in the sense any member of the public might understand by that word. It concerns preferential treatment.

Moreover, whether Britain is empowered in trade terms is subject to many factors. Negotiating bilateral trade agreements in an environment of growing economic nationalism exposes the underlying tension, where one trading entity may be more powerful or motivated to pursue their interests than the other. Britain has not had to negotiate either international trade rules (such as the WTO) or specific agreements since the 1960s. At that time Britain was the world’s fourth largest economy. Today it is the sixth. Then, British exports were on par with those of the second and third biggest traders, France and Japan. Today, Britain outside the EU accounts for a fraction of world trade compared to the EU as a negotiating bloc, and the US and China. Understandably, the British Government is not keen to highlight this relative decline in positional power. For example, in the February White Paper setting out the Government’s position on exiting the EU, one of the main representations of data is:

UK Exports Graph

Due to release delays the data is 2014. This way of representing the evidence places the US as Britain’s major export market and China as seventh. However, this ordering only arises because the EU is disaggregated. Seven are still EU members and eight are geographically close to Britain. The ONS typically provides both aggregated and disaggregated data for the EU as part of its trade statistics. Moreover, the representation here is percentage of share of exports, but not also value in terms of total trade or GDP for the countries involved, which would provide a greater sense of how important the trading relation is to the countries involved. As a step towards more context, consider the following from the ONS:

UK Top 10 Trading Partners in goods and services, current prices, 2014

Exports

(£ billions & approx % share of exports)

Imports

(£ billions & approx. % share of imports)

United States (17%) £88bn

Germany (13%) £71bn

Germany (8%) £43bn

United States (9%) £52bn

Netherlands (7%) £34bn

China (7%) £38bn

France (6%) £31bn

France (7%) £37bn

Ireland (5%) £28bn

Netherlands (7%) £36bn

Switzerland (4%) £23bn

Belgium/Lux combined (5%) £26bn

Belgium/Lux combined (4%) £19bn

Spain (5%) £26bn

China (4%) £19bn

Italy (4%) £22bn

Italy (3%) £16bn

Ireland (3%) £17bn

Spain (3%) £15bn

Switzerland (2%) £11bn

Source, ONS: visual.ons.gov.uk/uk-perspectives-2016-trade-with-the-eu-and-beyond

Though 17% of Britain’s exports are to the US, in the equivalent US Census Bureau Statistics, disaggregated by area, Britain is ninth, and accounts for just 2.9% of US exports and 2.3% of imports (US total exports in 2014 were valued at $1.6 trillion and dominated by Canada, Mexico and China). This pattern for Britain is repeated around the world. Trade with Britain typically accounts for less than 4% of total trade for most significant trading countries beyond the EU, and often less than 2%. Moreover, the headline figures disguise anomalies. For example, a third of trade with both China and India is actually wealth asset transfers (for stores of value) in the form of precious metals because Britain currently hosts the worlds largest bullion market.

The point to take from this is that Britain’s power in negotiation with potential trading partners is likely to be small and that negotiating with Britain will not be a major priority. There may be a great deal of talk between countries about ‘mutual interests’ and headlines regarding new eras and relations, but considerably less action, if by this one means actual and timely achievement. The world has changed, but geo-politics and economic leverage still matter. The concept of ‘post-geography’ is highly disputable.

Of course, one might argue that Britain has innate advantages. It is an original member of the WTO multilateral trade system and trades preferentially through existing EU bilateral deals. As such, negotiation begins from some common reference points. Arguably this also includes a universal language. However, common reference points are origins and, in any case, do not guarantee coincidence of interest or concern. Even if agreement is possible, bilateral treaties are resource intensive. Since Britain is still a member of the EU, Liam Fox is not yet empowered to lead formal negotiations. Informal consultations, however, still require extensive discussion between knowledgeable parties. Liam Fox may visit many countries but cannot effectively pursue relations with more than a few. It remains to be seen if the world is Britain’s oyster and precisely what that will result in: a pearl in the hand or grit in the eye.

Jamie Morgan & Heikki Patomäki guest editors, (2017) ‘Special forum on Brexit,’ Globalizations 14(1): 99-103, , HM Government (2017) The United Kingdom’s Exit from and New Partnership with the European Union February, CM 9417

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