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New Government, new trade policy?
Published 12 September 2022
Once again, the UK has a new Prime Minister, a new cabinet, and thus a new Secretary of State for International Trade. This is the 4th Secretary of State for trade in five years!
For decades the main thrust of countries’ trade policy was focused on trade liberalisation – ideally in both goods and services if possible, and across a range of fora. This included multilaterally via the World Trade Organisation, but also regionally through the signing of free trade agreements. All this of course in the context of selective protection of certain sectors and products according to countries’ offensive and defensive interests (agriculture, textiles, some professional services).
The UK chose to leave the EU in 2016; and subsequently, from a trade policy perspective, negotiated a fairly hard Brexit – think of this as a major trade policy reversal which has served to raise costs between the UK and its principal trading partner, the EU.
Departure from the EU has meant that the UK now has a sovereign trade policy. The question, which has not been clearly articulated by any of the previous Secretaries of State for Trade, is ‘how to best make use of that sovereignty’, and what constitutes UK trade strategy? Indeed, a recent Secretary of State declared that:
“the grand strategy is that we want to have liberalising trade deals that encourage and grow free and fair trade across the world with partners who want to work with us. That is the big picture”1
However, the need for a coherent trade strategy is perhaps even more important given the economic challenges facing the UK economy.
As seen from the above quotation, since the departure of the UK from the EU (2020), and the introduction of the UK-EU Trade and Cooperation Agreement (TCA) (2021), UK trade policy appears to have primarily focused on free trade agreements (FTA). Initially, other than the imperative of negotiating a deal with the EU, the focus was on the ‘continuity agreements’ i.e. rolling over all those agreements that the UK had been party to as a member of the EU (and this was important and was done pretty effectively); and more recently on the signing of new trade agreements. To date, the UK has new agreements with Australia and New Zealand; and is negotiating with a range of other countries (eg. India, Israel); and has applied to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
'Ask not which free trade agreements to sign but why you want them in the first place'
This FTA-focussed trade policy is not unimportant, but two points are worth making. First, signing FTAs does not constitute a trade policy and second, the economic benefits from these agreements are exceedingly small (though an agreement with India could be a bit more significant).
According to Department for International Trade estimates, the potential economic gains from the deals with Australia, New Zealand and the CPTPP could increase GDP by 0.08%, 0.03% and 0.08% of GDP respectively, in the long-term.2 These are small numbers.
In contrast, according to the Office for Budget Responsibility, the costs of leaving the EU amount to around 4% of GDP. In the first year of the TCA, UKTPO research indicated that UK exports to the EU relative to non-EU countries declined by 12.9%, imports by 23.5%, and the number of product varieties exported to the EU by more than 40%. Trade in some sectors, for some products, and some firms, has declined by much more than this. These are big numbers.
It would be useful if the new Secretary of State recognised the orders of magnitude involved in the trade-offs the UK has chosen to make and the consequences for UK consumers, workers and firms.
The dimensions of trade policy are much broader than free trade agreements and need to be considered in the light of domestic economic concerns and domestic policy.
Following the UK’s departure from the EU, UK trade policy will need to address these concerns and to do so in the face of major ongoing developments which, of course, represent (that over-used phrase) both opportunities and challenges! Those major developments in turn provide a useful way of framing what should be the focus of UK trade strategy:
- Climate change and how to achieve net-zero targets
- Supply chain resilience (Covid-19, geo-political tensions such as the Russian invasion of Ukraine) and the perceived risks of over-reliance on particular sources of supply
- Increased digitisation and the digital economy
- The growing significance of China in the world economy and world trade
These issues are clearly not uniquely trade issues; and indeed, in a fundamental sense that is the point. They cover other areas of domestic policy and domestic concerns. However, each of these do involve flows between countries; be this of goods, services, people, or data, and/or spillover effects between countries. Thus, they are part of the remit of trade policy, and clear examples of how trade policy is about domestic policy.
These issues, as well as rebuilding the UK’s economic relationship with the EU, should form the core of the UK’s trade policy in the immediate and medium term. Framed in this way, one can then consider how free trade agreements may help to address such concerns; and in what other way and in what other fora could and should the UK engage as part of its trade strategy.
This blog is co-published with the UK Trade Policy Observatory
Footnotes
- Anne Marie-Trevelyan, Evidence to the House of Commons, International Trade Committee, 21/10/2021
- See:
Australia: https://www.gov.uk/government/publications/uk-australia-fta-impact-assessment
New Zealand: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1057311/uk-new-zealand-free-trade-agreement-impact-assessment.pdf;
And CPTPP: https://www.gov.uk/government/publications/uk-approach-to-joining-the-comprehensive-and-progressive-agreement-for-trans-pacific-partnership-cptpp
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