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UK trade with the rest of the world

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In addition to transforming EU–UK relations, Brexit fundamentally alters Britain’s relations with trading partners outside Europe. There are two schools of thought regarding the impact of Brexit on rest of world trade of the United Kingdom.

One school holds that Brexit substantially weakens the UK's position in global trade. The country will cease to enjoy the collective bargaining power of the European Union, which as the world’s largest trading bloc wields considerable leverage in international trade negotiations. As a non-member state, the UK will stand alone in trade disputes adjudicated by the World Trade Organisation. Brexit also means the UK's withdrawal from the EU Customs Union, the European Union’s common external tariff regime. In theory, Britain could participate in the Customs Union as a non-EU state, following the example of Turkey. However, the May government has made clear its intention to leave the EU Customs Union coincident with Brexit. 

The counter argument holds that Brexit strengthens the international trading position of the United Kingdom. As a member of the European Union, the UK is prohibited from negotiating bilateral trade agreements with rest of world partners. EU membership thus confines the UK to trade deals negotiated by Brussels, which have been stymied by disputes over subsidies to continental European farmers (administered under the Common Agricultural Policy) and other protectionist lobbies. Exiting the EU will enable the UK to become a global beacon of free trade, striking robust trade liberalisation agreements with both developed countries (Australia, New Zealand, United States) and developing/emerging economies (Brazil, China, India). (Paul Marshall, “At Last We Can Embrace the Business of Building Up Prosperity”, Financial Times, 29 March 2017)

Brexit proponents further argue that an independent UK will be better able to navigate shifts in international political environment. The Trump Administration’s withdrawal from TPP (Transpacific Partnership) and attacks on NAFTA (North American Free Trade Agreement) signal mounting American hostility to regional trade agreements, dimming prospects for an EU-US pact under TTIP (Transatlantic Trade and Investment Partnership) and creating an opening for a bilateral UK-US deal.

Statistical data on the structure of British foreign trade clarify these contending arguments. The UK places among the world’s top 10 exporters and importers of merchandise trade. Within the merchandise export category, the UK ranks 4th in exports of of aerospace products, 6th in pharmaceuticals, and 6th in motor vehicles. In 2015, the UK ran a deficit of $165.4 billion in merchandise trade. 

But this merchandise trade deficit was largely offset by a $137.4 billion surplus in service-related trade, reflecting the UK's standing as the world’s second leading exporter of services. Furthermore, the United Kingdom’s trade in services is more geographically dispersed than its merchandise trade, with 37.2 per cent of UK service exports going to the EU against 43.8 per cent of merchandise exports. Within the services category, business and professional services represent the largest share of UK service exports followed by ICT, financial services, and royalties and licenses–global service industries in which Britain wields important competitive advantages.

7 of the UK's top 10 global trading partners are EU countries. But with the partial exception of Germany, growth rates of British trade with leading EU partners are modest. The United Kingdom’s fastest growing export markets reside outside the European Union: Switzerland, South Korea, Turkey, Saudi Arabia, China, United Arab Emirates. among the EU-27 countries, Poland displays the strongest rate of growth for British exporters.

 

This article was written by David Bartlett. David Bartlett is an Economic Adviser and Writer for RSM. He is Executive in Residence and MBA Director at the Kogod School of Business, American University in Washington, DC. Bartlett’s research, teaching, and consulting focus on International Corporate Strategy with special attention to emerging markets and emerging technologies. He has published widely on these topics while leading interdisciplinary research projects on the global economy.

 

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