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By Catherine McBride – 7 minute read

UK TRADE has taken quite a beating from the anti-Brexit brigade since the release of some 2021 trade figures almost a year ago. Now that the full set of 2022 trade figures have been made available we can see that not only were their conclusions premature, they were wrong too.

Organisations such as the OBR, the BBC and the Financial Times seemed to lose all sense of reason. These organisations should have noticed world trade had fallen by $2.5 trillion between 2019 and 2020 due to Covid, but didn’t. They should have understood what the UK trades, and why these products would be hit hard by Covid travel restrictions, lockdowns and Chinese factory closures, but didn’t. They should have known how the Rules of Origin in the UK–EU Trade and Cooperation Agreement (TCA) would alter UK trade statistics but didn’t. They even seemed to misunderstand trade intensity – it doesn’t measure economic performance – but they continued to mislead with it anyway.

Incredibly they forgot that one swallow does not a summer make and one set of trade figures don’t last forever, even though the improvement in UK trade, for most sectors, was obvious from the trade data from the second quarter of 2022.

Yet the anti-Brexit brigade were still pushing their ‘Brexit has destroyed UK trade’ rhetoric as late as December 2022 when on the Today Program[1] while interviewing Sir Kier Starmer, Mishal Husain, was incredulous that Starmer didn’t want to re-join the Single Market “after everything we know, how trade has gone down and the problems for our exporters”. She did not specify how she was measuring trade nor what problems she believed were troubling UK exporters. She was merely repeating the declinist consensus which she had heard repeated so often and thought was true. Well now we have full 2022 data, and the Anti-Brexit Brigade seem to have gone silent.

What is now very obvious from a sector-by-sector analysis I have just completed of UK trade with EU and non-EU countries from 2019 to 2022, is Brexit was generally not the cause of lower UK trade in 2020 and 2021. With the exception of vehicles, exports to EU destinations in most sectors fell in line with – or less than – export decreases to non-EU countries. In some sectors, UK exports increased to EU countries while they decreased to non-EU countries, while in other sectors exports to EU countries increased for some while decreasing for others.

Such variations between individual EU countries and between EU and non-EU countries disproves Brexit as a main cause.

Nor was Brexit the cause of UK trade recovering from Covid more slowly than comparable economies. This was due to the UK’s export mix which is dominated by aerospace, vehicle, and oil and gas exports. These three sectors were responsible for half of the UK’s trade decrease between 2019 and 2021. All were hit hard by Covid travel restrictions, key component shortages and domestic lockdowns.

Continued Chinese lockdowns during 2022 meant car manufacturers that rely on Chinese made computer chips have continued to have low production. While internationally, airlines grounded during Covid are still recovering from their losses which, together with the present high cost of fuel and generally lower discretionary spending for tourism, has limited their ability to purchase new planes.

But outside of car manufacturing and aircraft engines and parts, other sectors are recovering.  This is especially true of energy production which has flipped from exceptionally low levels in 2020 to exceptionally high levels in 2022. This has had a dramatic impact on UK–EU trade statistics. It is only unfortunate the UK needed to import gas in order to export it. (Although this will impress anyone who seriously believes trade intensity measures economic performance.) While in other sectors, stockpiles from 2019 and 2020 have run out, and EU customers are importing again.

The only sectors where trade has not and will not recover is in manufactured consumer goods, such as clothing, textile and footwear, that moved their production out of the UK to Asia – but did so decades ago. Under the UK–EU Trade and Cooperation Agreement’s Rules of Origin, these goods will no longer be counted as UK exports unless they are “finished” in the UK. The same goes for clothing and footwear imported from the EU but made outside it.

All trade agreements have rules for determining where a good was made. These rules ensure that only legitimate products of the signatory countries can benefit from the terms of the trade agreement. The UK-EU TCA has strict limits on the proportion of an imported good’s value that can come from a country not party to the agreement.

One benefit of this change is we can now measure the Rotterdam Effect and assess its impact on trade data. This refers to the process where goods imported from outside the EU and unloaded in Rotterdam, (or any other major cargo terminal) before being distributed to other EU destinations was often recorded as coming from the country where the goods were landed (e.g. Netherlands). This greatly exaggerated the trade data for European countries with large container ports, including the UK. We can also see the land bridge effect, where UK goods destined for Switzerland by road were recorded as going to France, while goods going from Amsterdam to Ireland via UK roads were often recorded by Ireland as imports from the UK. Being able to measure trade accurately will help the government formulate better trade policy.

This is important as in some product sectors, export declines set in well before the 2016 referendum. The causes vary from: uncompetitive tax regimes in the case of pharmaceuticals; environmental regulations in the case of oil and gas investment and development; or comparative manufacturing advantages shifting to Asia for electronics, clothing, textiles and footwear manufacturing.

Trade analysis must look at the economic value of trade in each product sector, not worry about headline agglomerated trade numbers where a calamity in one sector can be cancelled out by a windfall in another. Governments can’t address the calamity, if they can’t see it or measure it.

Additionally, trade statistics must be viewed over several years to get a clear picture of any true Brexit variations. For example, in the year before Brexit, when Theresa May was threatening to leave the EU without a trade deal, many items traded between the UK and the EU saw considerable stockpiling. So, 2019 cannot be used in isolation as a fair representation of normal trade before Brexit. Similarly, 2021 captured UK trade at a nadir in multiple industries. Pretending that the difference between trade in these two years measures the results of Brexit fairly is nonsense.

It is impossible to measure the success or failure of a strategic shift in UK trade policy based on a few year’s trade data. It will take some time to measure Brexit accurately, and even then, it will be necessary to also access the impact on trade of other government policies such as the 30% increase in Corporation Tax rate and imposition of windfall taxes that could drive many exporters and investment out of the UK.

Other threats to UK trade will be the supply of microchips to UK car manufacturers; an international green agenda that makes civil aviation unaffordable; the steady haemorrhaging of pharmaceutical manufacturing to low-tax competitors in the EU; and lower investment in Oil and Gas due to unpredictable taxes and licencing constraints.

These challenges have nothing to do with Brexit. None of them would be solved by re-joining the Single Market.

At present UK trade policy – and trade commentary – is being determined by lobbyists and media commentators with their own political axes to grind. Global trade should improve the general wellbeing of UK citizens, the profitability of UK corporations and the UK economy. Limiting free trade to just one small corner of the globe, will also limit the benefits.

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Catherine McBride is an economist and the author of Brexit and UK trade – What has changed? a paper analysing UK trade performance by sector since Brexit.


[1] BBC Radio 4 – Best of Today, Keir Starmer on reform plans, private schools and the single market

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