Blog post

The UK needs a coherent strategy of industrial and trade policy

Published 30 January 2025

Economic and productivity growth are central pillars of the UK Government's policy agenda. In this context, as it plans actions across various domains, the government launched a consultation on its industrial strategy, placing growth firmly at the forefront. To contribute to this discussion, the CITP together with the UKTPO responded to ten questions from the consultation and offered actionable recommendations.

Achieving sustainable economic growth requires aligning trade and industrial strategies. While trade policy establishes the framework for global engagement and market access, industrial policy aims to strengthen domestic capabilities and identify strategic priorities for research and sectoral development. However, the boundaries between these areas are increasingly blurred, necessitating a cohesive approach to harnessing global opportunities, addressing domestic challenges, and fostering resilient economic systems.

Our response identified key priorities that cut across various sectors and policy areas, offering a roadmap for targeted interventions and long-term growth:

1.     Identification of strategic sectors and frontier technologies
The evolving nature of sectors, driven by fast technological advancements and inter-sectoral linkages, calls for a forward-looking approach to identifying growth-driving sectors and research-intensive emerging technologies. Traditional metrics like Revealed Comparative Advantage (RCA) should be supplemented with novel indicators, network analysis, and case studies. The importance of identifying both strategic sectors and technologies for international competitiveness, growth and sectors vulnerable to geopolitical and volatility risks is emphasised. These sectors may require tailored support to navigate structural challenges or adapt to significant regulatory changes.

2.     Strategic international positioning and partnerships
The UK’s industrial strategy must navigate a complex geopolitical landscape, balancing trade relations with the EU, US, and resource-rich countries (like China). Aligning industrial and trade policies to ensure access to critical technologies, critical minerals and to support resilient supply chains is essential. The alignment with the EU Open Strategic Autonomy can enhance economic security and competitiveness, addressing the trade-off between the increasing dependence on China for critical material and intermediates and the reliance on the EU Single Market as a major destination for UK exports.

3.     Regulatory certainty and alignment
Regulatory stability is a key enabler of investment. Dynamic regulatory alignment with the EU, particularly in areas like emissions trading and product standards, can provide certainty for businesses. Coordination across competition, trade, and industrial policy is crucial to ensure consistent and effective policy outcomes.

4.     Data access and digital infrastructure
Data is a critical enabler of the digital and green transitions which impacts on all sectors, though possibly more on services, where the UK has clear comparative advantages. Investing in sustainable digital infrastructure and aligning with the EU’s data regulatory framework are essential to implement the UK AI strategy, and to foster innovation and digital trade. Policies should support investments in data centres and other physical digital infrastructure, to reduce dependence on US digital infrastructure while ensuring certainty and standardisation of digital regulation.

5.     Supporting innovation and reducing barriers to growth
Barriers to investment, internationalisation, and innovation need to be addressed through targeted support. This includes reducing bureaucratic hurdles, promoting export credit schemes, and fostering public and private investment in R&D and innovation. Ensuring the availability of a skilled workforce and the necessary infrastructure is also vital for regional growth.

6.     Addressing seemingly non-growth economic objectives
Incorporating non-growth objectives is critical for a well-rounded industrial strategy, as they indirectly contribute to growth as well while providing other benefits to the economy and society. Regional development can reduce disparities by leveraging regional strengths, skilled labour, and infrastructure, ensuring that investments foster balanced economic growth. Specific support for SMEs is equally essential, as these firms face higher barriers related to internationalisation costs and access to finance.

7.     Support the digital and energy transitions
Industrial policy should focus on ensuring the transition to Net Zero, leveraging the opportunities provided by emerging technologies while mitigating the potential environmental footprint of increasing digitalisation. This is not only a priority for the planet, but also a cost abatement for firms that are required to align to carbon emission-lowering schemes (such as CBAM).

Aligned with these overarching themes, our recommendations can be summarised as follows:

1.     Selective and targeted policy interventions: Policymaking should focus on a clear, selective approach to sector prioritisation, ensuring that interventions are strategic and evidence-based.

2.     Alignment with the EU: Dynamic regulatory alignment and deeper cooperation with the EU, especially in emissions trading, standards, investment in digital infrastructures, and alignment with Net Zero policies are crucial for maintaining competitiveness and market access.

3.     Strengthening international partnerships: Establishing objective-based international partnerships, particularly in critical minerals and digital infrastructure, is essential. Transparency and mutual benefits should be key principles in such agreements.

4.     Enhancing data access and digital infrastructure: Encouraging sustainable investment in data centres and other digital infrastructure to reduce dependency on the US, as ownership of large data centres and digital clouds is a strategic asset (e.g., Foreign Direct Investment), (cyber) security of collected data. This type of investment should be monitored for its environmental impact and the extent that it will support innovation and competitiveness.

5.     Reducing barriers to investment and growth: Addressing key barriers such as regulatory uncertainty, internationalisation costs, and infrastructure gaps will enable firms to invest, innovate, and scale up activities more effectively.

6.     Supporting inclusive and sustainable growth: Include policies that reduce regional disparities, embed sustainability in industrial strategy, and lower barriers for SMEs through targeted support measures, ensuring a more resilient and geographically balanced inclusive economy.

In conclusion, our responses converge on a strategic industrial policy framework that prioritises international collaboration, regulatory certainty, evidence-based decision-making, adaptability, and meaningful closer economic relations and reduced barriers with the EU. These themes and recommendations offer a coherent approach to fostering sustainable economic growth and resilience in the UK.

Although the consultation closed in November 2024, the recent political change in the United States cannot be overlooked. It remains too early to provide a comprehensive analysis of how the policies of the new Trump administration may affect the UK industrial (and trade) strategy. However, early indications suggest heightened (regulatory) uncertainty for firms, driven by potential actions that could impact trade dynamics, investment flows, and labour markets. This environment will undoubtedly further test the resilience of both firms and governments. It also serves to underline the importance of minimising the extent to which  UK trade is dependent on any particular country – be this the US or China - and the importance of strong economic relations with reliable partners.

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