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Amar Breckenridge

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In late 2025, we published a comprehensive analysis of the UK’s trade policy landscape: UK Trade Policy: An Independent Review. We encourage interested readers to look at the full report for more detail. Each chapter, listed below, can be read independently, with both an executive summary and key recommendations provided.

• Ch.1: UK trade and economic performance
• Ch.2: What do we know about UK trade policy
• Ch.3: Domestic dimensions of UK trade policy
• Ch.4: International dimensions of UK trade policy
• Ch.5: Trade and economic security
• Ch.6: Trade and the digital transformation
• Ch.7: Trade and sustainability
• Ch.8: Trade, employment and gender

In this series of blogs, we summarise each chapter, with this one summarising how economic security objectives intersect with trade policy.

Introduction

Writing in 1987, Paul Krugman famously wrote that “If there were an Economist’s Creed, it would surely contain the affirmations “I understand the Principle of Comparative Advantage” and “I advocate Free Trade.” Two affirmations that there are gains from trade, and these gains reflect the benefits of specialisation. The truth of these propositions was demonstrated over the following three decades through the growth of global value chains, which by 2020, accounted for 70% of global trade. Over the same period, global poverty fell markedly, and greater economic integration and interdependence were seen as mechanisms that would foster cooperation between nations.

But from 2020 onwards, scepticism about the gains from trade became more vocal. Economic integration has taken a back seat in policy discourse to the notion of economic security, for various reasons. Reasons include the distributional effects of trade and worries that patterns of concentration in economic activity – from “critical minerals” to digital activities – created vulnerabilities that could be exposed by unanticipated shocks, or exploited at time of heightened geopolitical rivalry.

A balancing act

For all its prominence in policy discourse, “economic security” remains a loosely defined concept. Some jurisdictions, such as the European Union and Japan, have set out explicit policy positions and definitions with regard to economic security. The UK has not done so, but economic security nevertheless features prominently in recent policy documents, notably the Industrial Strategy, the Trade Strategy and the National Security Strategy.

The emphasis on economic security is not a wholesale repudiation of trade; rather, it is that countries should seek the “right” linkages and interdependencies, where the criteria for what is “right” go beyond sole considerations of efficiencies. The difficulty for smaller, relatively open economies such as the UK is that conducting trade policy on criteria other than pure economic efficiency can come at a cost. In particular, policies that make an economy less open to trade lead to slower growth; estimates suggest that a one percent reduction in openness reduces growth by around 0.5%-0.7%.

On balance, the approaches taken by the UK Government recognise that economic security needs to be pursued in a manner consistent with the growth objective, and that to do so means limiting the extent to which interventions are trade restrictive. Many of the interventions envisioned by the Industrial Strategy are directed at correcting market failures that hinder the emergence of new technologies. Correcting market failures at source through instruments such as subsidies might generate trade spillovers, but they are more efficient and less trade distorting (hence why trade rules are more permissive) than other measures. The UK has also thus far rejected overtly protective measures such as tariffs or local content requirements; though it is true that it has sought to create greater flexibility for the use of contingent protection (anti-dumping and safeguards).

At an international level, the UK has thus far (with the notable exception of its dealings with the – see below) largely operated within the framework of the World Trade Organization’s (WTO) rules. It remains an active participant at the WTO. But its main focus has been on concluding Free Trade Agreements (FTAs) within the scope of WTO rules, to simultaneously deepen trade linkages, increase resilience to shocks, and manage geopolitical risk.

But can it be sustained?

How far this calibrated approach can be maintained is open to question. There is domestic pressure for more restrictive trade measures, even if only because they have become fashionable in their largest trading partners. The Trade Strategy thus talks about the “need [for] a more varied – and smarter – set of trade tools than we have had in the past”, without saying exactly what these are meant to be. But as pointed out above, the most visible aspect of this toolkit – trade remedies – has undoubtedly taken a more restrictive turn. In particular, the application of its economic interest test, a useful – if incomplete – mechanism for assessing the efficiency costs of trade remedies versus their putative benefits, has been weakened.

The main conundrum for the UK, though, lies in how to position itself vis à vis the US. The main challenge is not US tariffs, in regard to which the UK is less exposed than some of its partners in Europe and Asia. Rather, it is the US attitude towards trade governance as a whole, as seen particularly in the US approach to striking trade “deals” with partners.

The US-UK “Economic Prosperity Deal” (EPD) is very much at the nexus between trade and economic security. But it also undermines WTO rules. Firstly, because it has the effect of raising US tariffs relative to the US’ MFN commitments. Secondly, while the EPD may mitigate the risk of even higher tariffs on UK exports, it does so conditional on the extent to which the UK takes active steps to squeeze out of its trade linkages countries deemed inimical to US security interests (read China, and potentially countries with which China has significant trade linkages). In other words, mitigation of tariff risk is conditional on the UK moving away from MFN principles. The EPD can therefore be characterised as a WTO-minus arrangement, in contrast to the WTO-plus nature of traditional FTAs pursued by the UK. Moreover, unlike traditional FTAs, the degree of legal certainty offered by the EPD is limited. It is not couched in legally binding terms, and the definition of what is in the US’ national security interest is left open-ended and subject to discretionary change by the US.

It may be that arrangements such as the EPD are seen as stop-gap measures pending a more structured arrangement, possibly under a new administration that is less prone to making trade policy on a whim and that restricts its view of national security to specific concerns. But that is very speculative. Moreover, if the logic is that the EPD helps to buy time, the UK should at the very least carry out an analysis of how far the benefits of such non-standard arrangements weigh when compared to pursuing WTO compatible approaches with the rest of the world.

What are the next steps?

In this challenging context, several issues are worth considering. The first is the need to have a specific definition of economic security. Leaving the definition of economic security open may give governments the latitude to decide what it means and how to pursue it. But that discretion comes at a cost: history teaches that with a little creativity, almost anything could be cast as an economic security matter, leaving governments open to traditional protectionist lobbying. Indeed, a number of sectors – notably heavy industry – that feature in economic security discussions have a long history of seeking contingent protection. Protectionism comes with its costs.

A second issue is how the UK should deal with coercive trade actions taken by partners. Examples include US tariff threats linked to US policy towards Greenland and the Arctic Circle. As, arguably, the dominant initial focus of economic security in the UK has been on resilience and diversification, the economic security toolkit is less equipped to deal with such actions. One option for the UK may be to develop something akin to the EU’s anti-coercion instrument. The main constraint for the UK is that its much smaller market size would give such an instrument less force.

A more plausible option is to embrace what might be known as the “Carney doctrine,” i.e. to recognise that belligerent attitudes by larger countries are the norm and that middle powers should cooperate, maybe via a modified form of multilateralism with varying geometry. On that front, the UK’s active FTA agenda has one weak spot: its relationship with the EU, its largest trading partner. Closer integration can reduce trade costs; it can also boost economic security in both the UK and the EU, especially in areas such as advanced technologies.

Finally, for all that both interventionism and pessimism about trade are in vogue, it is also true that trade has proven to be resilient in the face of policy uncertainty. Paul Krugman’s observation at the start of this piece is taken from an article “Is Free Trade Passé?”. The late 80s were, after all, filled with talk about strategic trade policy, and Krugman cautioned that while it remained good policy, it couldn’t always be presented as the right answer. Yet the decades following Krugman’s statement were marked by a lowering of trade barriers, greater integration, and greater prosperity, however uneven. The gains from trade are real and there will always be an incentive for governments, businesses and citizens to seek them. The various concerns that underpin discourse around economic security highlight that trade liberalisation is not – as Krugman pointed out – a fail-safe policy prescription. There are trade-offs at play.

But the very fact of these trade-offs highlights the importance of a principled approach, particularly in a global economy that is struggling to generate growth. The UK has the opportunity to develop such a principled approach, both for its benefit and for others that wish to harness the potential trade carries to raise living standards.