Evidence

CITP and UKTPO submission on the UK Trade Strategy

Published 27 January 2025

The UK Government’s Department for Business and Trade requested views on a UK Trade Strategy to be submitted in January 2025. Our response, made together with the UKTPO, is based on our research, evidence, and experience of trade and trade policy, on a series of post-UK general election roundtables convened by the CITP with policymakers, stakeholders, academics, media and think tanks over the past few months, as well as from polls and consultations we have undertaken with the general public.

General issues

1.         The trade strategy needs to align with the industrial strategy. Given the openness of the UK economy to international trade in goods and services, and the globalised nature of production and innovation, it is hard to conceive of a strategy to improve growth and prosperity that does not take international trade part of its core.

2.       The landscape for trade and economic growth is difficult, and there appear to be more challenges than opportunities. The challenges arise from:

  • events (geopolitical tensions, the war in Ukraine, COVID-19)
  • sustainability challenges (climate change, environment, biodiversity);
  • technological change (eg. digitisation, AI);
  • growing concerns about the impact on ‘people’, be this human rights, working conditions or health.

3.         The government needs to identify how such challenges can be turned into opportunities by building on the UK’s existing and potential strengths, ranging from digitisation to the green transition or agrifood. For example, digital trade is transforming international trade and trade policy. Given the UK’s competitive advantage in digital services and the role the UK has played in digital trade agreements, the digital space has the potential to be both an exciting but also an important opportunity for the UK.  A second example concerns the environment and the green transition. There is the scope for this to be an opportunity for the UK – ranging from research and development to windfarms, carbon capture and storage. A third example is the agri-food sector where the UK has strong competitiveness in niche and premium products, and which is a sector where trade policy is likely to rise in importance with concerns ranging from food standards, food security, health and nutrition.

4.         Industrial strategy is not only about improving economic performance but also about policy to guide / shape the future structure of the economy. Policymakers should be concerned about that longer-run perspective and how policy can be used to facilitate long-term objectives and to nudge the economy in certain directions. Arguably, this may be more important in a country, such as the UK, where firms typically have a shorter investment time horizon than in other countries such as Germany, Korea or Japan. There will be trade-offs between short-run concerns and longer-run objectives.

5.         Trade policy should support the objectives of growth and competitiveness, and most of the suggestions below reinforce this.

6.         As well as growth and competitiveness objectives, the government has legitimate equity and (economic) security objectives, which will form part of both the industrial and trade strategies. Trade-offs are inevitable. The broader objectives should be made transparent, and the presence of trade-offs should be acknowledged. Just because there may be equity or security objectives does not obviate the need for competitiveness and/or efficiency considerations in achieving those objectives. Generally, policy is more efficient the more it is targeted at the objective / problem / distortion it is trying to address.

7.         While international trade is generally beneficial, any specific trade measure is likely to have uneven consequences, including cases which are strongly desirable at a societal level but in which some people/groups may lose. In addition,

8.         The evidence (in part from our own research, citizens’ juries and an online poll) shows that while economic growth is considered an important objective of trade policy, other issues such as climate change, the environment, food standards, the regional distribution of economic activity across the country, and labour standards are considered almost as important.

9.         Given points (7) and (8) the trade policy regime should also generally be inclusive in outcome (i.e. that all main sections of society gain from overall policy over the medium term), and that this is made clear in the trade strategy. Where that is not possible, general policies to support people/sectors who are struggling should be available. International trade and trade policy are typically not good instruments for achieving desired redistributions of income and welfare, but where the outcomes of trade policy align with explicit and legitimate political distributive objectives, inclusiveness should not be a barrier.

10.   There are strong arguments and empirical evidence that reducing barriers to trade and investment between countries, leads to more trade and growth. This occurs because of the gains from specialisation according to comparative advantage; increased competition between firms leading to lower mark-ups, the exit of less efficient firms and the entry of more efficient firms; more variety, choice and quality for consumers and firms purchasing intermediate inputs; positive technological or managerial spill-over effects; and the stimulus to investment, research and development and technological progress.

These gains largely derive from the ability to increase imports from partner countries. Exporting amounts to producing goods and services and then putting them on a ship or down a wire. The evidence is that it is imports that confer welfare on (UK) consumers (by providing access to a greater range of goods, lower prices, higher quality from relatively more efficient producers), and by increasing UK productivity (both by firms becoming more efficient from more competition and from learning from others, and also from the exit of less efficient firms). While there may be additional gains from exporting (from diversification, economies of scale, extending product life cycles, spill-over effects and technology transfer), exports are largely a means to an end.

It is also the case that the current account deficit is large and there is some limit on how many assets we have left to sell overseas, so exports will be very important.

11.   Exports, and even more so, imports, depend on trade procedures and infrastructure. These require conscious attention and resourcing to remove barriers and frictions to the maximum extent consistent with safety. Government should not short-change them in either financial terms through appropriate support programs, or analytical terms in terms of evaluating the effectiveness of the different support programmes. This is particularly important for SMEs for whom the additional costs and information constraints for successful exporting are much harder to bear.

Policy issues: 6 Key areas

The domestic trade policy process

1.         UK trade policymaking should be more transparent and consultative. Currently, the process of UK trade policymaking is very closed in terms of inputs, information, debate, scrutiny and, indeed, understanding. The making of good policy requires good institutions, evidence-based policymaking, transparent processes with consultations with stakeholders such as producers and consumers, UK regions / nations, assessments and an ex-post review process, appropriate parliamentary scrutiny, and the input of the devolved administrations. Secrecy in trade negotiations does not always increase ones bargaining power. The Government should ensure that trade policy is suitably debated in Parliament and with the devolved administrations and that there are formal routes through which stakeholders are informed and consulted. Such structures would make policymaking more inclusive than it currently is and, importantly, would help to increase the legitimacy of the inevitable policy choices and trade-offs that need to be made.

2.         We recommend that the government establish an independent Board of Trade to provide (independent) analysis of UK trading performance, evaluation of trade policy and how it supports UK industrial policy. This would help to improve the quality and legitimacy of UK trade policymaking, as well as to depoliticise some of the debates.

3.         Commit to a detailed annual report on UK trade and trade policy. This should comprise a summary of trading performance and of the policy regime, and a more detailed account of developments across the policy and trade agreement landscape over the reporting period and identify the main barriers / challenges facing UK firms. The annual report should also provide an evidence-based evaluation of the effectiveness of areas of trade policy.

4.         Ensure that there is a ‘whole of government’ approach in the making and implementation of trade policy. To date that has not been the case with DIT / DBT being primarily responsible for free trade agreements (except with the EU), and export support, and other departments / units with responsibility for other areas of policy (agriculture, net zero, relations with the EU, migration). To some extent this is inevitable, but there needs to be clearer oversight and coordination of UK trade policy, otherwise it risks being incoherent and departments pulling in different directions.

5.         Effective trade policy must be underpinned by effective monitoring, appraisal and evaluation – all of which require investment in the quality and access to trade data for research. Much of this data does exist and/or is not easily available to researchers. Much more could be done to direct the efforts of research if accessibility was improved. Note: this recommendation follows up on the letter (and subsequent reply) signed by over 20 of the leading UK-focused trade economists sent in October 2024 to the DBT chief economist, Ben Cropper.

International Partnerships and multilateral issues

6.         The rise in geopolitical tensions and the risk of economic fragmentation increase the importance of improved relations and economic ties with the EU, for both geopolitical reasons but also for ensuring a stable, resilient and flexible economic environment for the UK economy.

A significant economic reset with the EU is a fundamental requirement for the UK and thus for the trade strategy. This amounts to more than just a veterinary agreement and facilitating movement for travelling artists. Arguments that other markets are growing faster than the EU are true but largely irrelevant – the EU is very large, very rich, very close and culturally aligned with the UK, and leaving the EU has been economically damaging to the UK. We doubt it will ever lose its position as the UK’s primary trading partner. In many cases, the UK remains largely aligned with EU regulations (though less so in agri-food) – and has no serious pressure to diverge – so here aligning unilaterally first and then seeking mutual recognition from the EU seems a plausible approach. Negotiations with the EU will not proceed very far until the UK shows a willingness to grasp the alignment nettle, which is likely going to require a binding legal commitment.

7.         Many of the key barriers between countries are regulatory, and this applies with respect to both goods and services. Reducing regulatory barriers is a key means of providing improved market access for imports and exports. This could be achieved either via Free Trade Areas, or through more narrowly focussed mutual recognition agreements or processes of regulatory cooperation with key partners, with agencies with comparable remits, and with regard to key products / sector, as well as with regard to the mobility of workers.

8.         The multilateral trading system has served the world well and, while it is clearly sickly, it is too early to give up on it. UK policy should adhere to WTO rules. Where violations by others make deviations inevitable or there are clear lacunae in the rules, the Government should be very explicit about why that is so and seek to negotiate with partners to return to multilateralism as closely and as soon as possible. The government should join the MPIA and if not provide an explanation.

9.         The multilateral system permits plurilateral trade agreements under certain circumstances. The UK should seek to adopt and promote a code of conduct that makes plurilaterals less threatening to non-participants and hence less contentious and easier to enlarge.

10.   The UK should be clear in its commitment to support developing countries through trade and appropriate trade policy measures. An element of this will be the Developing Countries Trading Scheme, but this is not a substitute for a more integrated approach which calls for in-country expertise, support and interventions.

Economic Security

11.   Policy tools for economic security, such as export controls, investment screening, subsidies for reshoring and friend-shoring tend to intensify government interventions and interferes with international trade and investment activities. In a world with rising industrial policy protection, there is a risk that economic security is used too easily as a justification for intervention. Economic security measures which interfere with UK companies’ day-to-day business need to be resisted, and if introduced, need very careful justification.

To retain the balance between economic security and trade policy, the government should provide a clear definition of economic security and a principles-based framework for considering the circumstances and actions the Government might use to promote economic security. Consider the frameworks or structures used by other countries such as Australia or Japan. Ideally, the development of such a framework may be more credible and long-lasting if it is developed by an independent body outside of the politically determined processes.

12.   As part of the government’s commitment to developing countries, the government should consider and take into account the impact of unilateral economic security measures on developing countries.

13.   Identify the sectors and/or technologies which are critical to the UK’s economic growth and consider the vulnerabilities which may need addressing. As with many of the recommendations made here, this should be research / evidence-based and will require access to detailed firm-level data, discussions with firms, and an improved understanding of the supply chains. Policy measures should then be based on business needs especially those of SMEs, such as providing information and analysis relating to geopolitical risks and interventionist trade measures likely to affect global supply chains. Supply chain security is not always enhanced by attempts to source domestically.

14.   Sharing information and improving transparency through bilateral and plurilateral collaboration with partner countries, and collective international actions will be important to mitigate unintended consequences to UK business, but also for the international trading system.

15.   The UK needs to identify where it wants to position itself in Critical Raw Materials (CRM) value chains, where there may be a need for intervention and assess the effectiveness of existing partnership agreements with mineral-rich countries.

Sustainability, Climate/Net Zero

16.   Over the next decade, if not over the next four years, climate change will become an ever more pressing international policy issue (it is already a pressing problem). This will require that the ETS and CBAM minimise unnecessary costs / obligations on firms as much as possible – which, inter alia, implies alignment with the EU.

Net-zero targets and industrial policy both focus on production within the UK and that is clearly significant. However, for climate change the issue is less what gases are emitted from within the UK but what gases are emitted as a consequence of UK consumption. The climate consequences of emissions are the same regardless of where they are made. Although the UK has cut emissions strongly since 1990, increasing amounts of emissions have been expended on goods imported into the UK

Protection for local producers of ‘environmental goods’ will generally not make sense – the UK is not large enough to go it alone – but in very select cases, if trade is clearly distorted and unfair, trade defence may be appropriate.

If support is offered to specific sectors on the promise that they will become globally competitive in time, ensure that such support is limited both in duration and that even over this period while accepting that not all firms will be successful, support should be conditional on agreed performance metrics.

17.   There is a good case for cooperation with the countries whose firms are industry leaders in many green-good sectors – and these are not necessarily in the USA, nor, often, in the EU, and are frequently in China. As a global externality, climate change requires a global solution – cooperation on international trade and investment can be made useful stepping stones towards that.

18.   Recent policy debate often focuses (overly) on border carbon adjustment policies. Yet there is a wide range of trade related green / sustainable policies which could and should be considered. These include both international policies (such as joining the ACCTS negotiations, FTA chapters, trade in environmental services, regulatory cooperation) and unilateral policies (tariffs, encouraging the circular economy through repair, reuse, and recycling, greening supply chain inputs, corporate reporting and accountability).

Digital Trade

19.   The term ‘Digital trade’ is a bit of a catch-all, yet from a policy perspective it is important to distinguish between: (a) Digitally-enabled trade such as payment systems or insurance; (b) the digital delivery of goods and services; (c) the digitisation of trade flows such as customs procedures; (d) the digitisation of supply chain management. Each of these requires the management / regulation of data and dataflows.

Digital trade is of particular importance for the UK, given the high share of services in UK trade, and since digital trade influences all services sectors and many goods sectors.

There are three major digital trade regulatory policy blocs (US, EU and Asia-Pacific) and the UK is in danger of finding itself outside all three. It needs to maintain strong technical capabilities and high levels of diplomatic activity in order to try to avoid this. At a minimum, it should try to engineer global collaboration or at least the co-existence and interoperability of the three blocs’ positions. In so doing, the UK could provide international leadership in digital trade negotiations and help the UK exploit its comparative advantage in producing and exporting digitally-deliverable services

20.   Extending the moratorium on imposing customs duties at the WTO should be set as a priority for businesses.

Firms / industries / sectors

21.   The trade strategy will naturally range further than just the preferred eight sectors identified in the Industrial Strategy Green Paper. Identifying priority sectors is tricky. In part this is driven by the need for different priorities: growth/competitiveness, economic security, equity/inclusiveness as well as the need to balance immediate concerns with longer-term structural objectives. Key sectors and industries within these priority areas should be identified using clear, published metrics, and then the need and justification for policy intervention considered. Just because a sector may be a high priority does not mean there needs to be a domestic capability or self-sufficiency (eg. semi-conductors, electric vehicles). Where targeted support is given, the Government must be prepared to accommodate failures / mistakes, even though this may be politically challenging.

22.   Sectoral identification needs to recognise the interconnectedness between sectors, as classical definitions of sectors and subsectors have, in many cases, become much more blurred. Some sectors (eg. digital, energy, semiconductors, financial or business services) serve as foundational pillars, supporting multiple downstream industries and essential services. A disruption in these key sectors risks triggering extensive ripple effects, compromising productivity and employment across the economy. Moreover, sectors that are both vital and interconnected often rely on complex supply chains and specialised inputs, increasing their susceptibility to global disruptions. A clear strategy, aligned with the industrial and trade strategy is needed to integrate policy goals.

23.   There is increasing confluence between the rise in digitisation, the complexity of modern supply chains, and the increasing tendency for countries (such as the US and the EU) to introduce regulatory control over both product and process standards throughout the supply chain, and on firms from third countries. This tendency is likely to continue to rise. On the one hand, this is likely to increase the burden of firms and traceability requirements, on the other hand, it allows for more targeted and focused policy interventions to deal with issues such as sustainability or human rights and economic security. The government needs to consider both how it will respond to the policies introduced by other countries, but also the extent to which it wishes to use such levers to achieve some of its (largely non-growth focused) objectives.

24.   One of the sectors omitted from the government's ‘modern industrial strategy’ is agri-food. Not only is agri-food significant in terms of its share of GDP and employment, both agriculture and food figure highly in the public polling of important trade issues, in part to do with concerns about food standards and health, but also food security and the cost of living. The current policy landscape is fragmented, with multiple departments, policies, and sectors.

25.   Both importing and exporting require inter alia: knowledge of other markets, the regulatory requirements, and the administrative procedures therein, knowledge and risk assessment of international suppliers, trade finance, and the ability to deal with the bureaucracy of trade. Much of this is in practice very challenging, and in particular for SMEs. It is important that policy recognises those challenges and that support for exporting firms should be sufficiently well structured and resourced and then evaluated. This should range from trade finance, provision of information on procedures and on markets, affordable advisory services,

26.   The domestic and international regulatory environments are becoming increasingly significant for international trade in both goods and services. They can serve both as a barrier and as a facilitator. This applies both to product-related regulations, as well as to process-related regulations which increasingly go beyond the product dimension but touch upon environmental, social or governance concerns. The government should actively consider the scope for reducing regulatory barriers domestically and with partner countries through coordination, cooperation, and mutual recognition agreements.  With regard to services, the regulatory environment should facilitate the private sector’s optimal choice of services delivery, be that cross-border trade, local establishment, the mobility of service professionals, or a preferred combination of these modes.

Key resources

Author Profile

Headshot of Michael Gasiorek

Michael Gasiorek

Centre Director

View profile