Global Trade Divide in the UK: A Post-Brexit Reality Check
A global tariff war could bring into stark relief the trade divide in the UK between exports and services following Brexit. This warning comes from a new report by the Resolution Foundation, which highlights the diverging performance of goods and services trade since Britain’s exit from the EU.
Brexit: A Tale of Two Sectors
The foundation’s report reveals that post-Brexit trade has been marked by stark differences between the two sectors. Goods exports have performed poorly, growing by a mere 0.3% per annum since 2019, compared to an OECD average of 4.2%. In contrast, services exports have continued to thrive, expanding by 7.5% per year since 2019, outpacing the OECD average of 6.1%.
Services Sector: A Surprising Bright Spot
The services sector has emerged as a bright spot in the UK’s post-Brexit trade performance. This sector now accounts for the majority (54%) of all UK exports and has continued to grow despite the challenges posed by Brexit. Some of the top-performing areas within this sector include:
- Insurance and Pension Services: The UK has gained global market share over other OECD economies in this area, with a gain of 0.9 percentage points.
- Other Business Services (including legal services, R&D, and management consulting): The UK has also gained market share in these areas, outpacing its French and US competitors.
Barriers to Exporting Goods
The report attributes the diverging performance of goods and services trade to the existence of fewer barriers to exporting non-physical products. This suggests that services are more easily traded than physical goods, which may face tariffs and other non-tariff barriers.
Trump’s Tariffs: A Potential Threat to UK Firms
US President-elect Donald Trump has been ramping up his rhetoric on trade, threatening tariffs on foreign imports as he prepares for office. His recent threats include:
- 100% tariffs on a bloc of nine nations: If these countries create a rival currency to the US dollar.
- 50% tariffs on China, Canada, and Mexico: In recent weeks.
Should Trump expand his tariff threats to the UK, the impact on firms that export goods to the US could be severe. Imposing 10-20% generalised tariffs on goods would be roughly equivalent in scale to the non-tariff barriers imposed by Brexit on goods sales to the EU.
A Global Approach to Trade
The report recommends that the government take a global approach to reducing barriers to services trade, which could help mitigate the impact of Trump’s tariffs. This includes:
- Avoiding taking sides on tariffs: The government should not take a partisan stance on tariffs, which could exacerbate tensions with other countries.
- Easing cross-channel trade for goods: The government should ease non-tariff barriers to trade between the UK and EU to help mitigate the impact of Trump’s tariffs.
- Taking a truly global approach to reducing barriers to services trade: This could involve negotiating new trade agreements that prioritize the free flow of services, which are more easily traded than physical goods.
Conclusion
The Resolution Foundation’s report highlights the need for the UK government to take a more nuanced approach to trade policy. By prioritizing the reduction of non-tariff barriers to services trade and taking a global approach to reducing tariffs, the government can help mitigate the impact of Trump’s tariffs and promote sustainable economic growth.
References
- Resolution Foundation report: "The Trade Divide: A Post-Brexit Reality Check" (available upon request)
- OECD data: Organization for Economic Co-operation and Development
- Trump’s trade threats: Various news sources, including The New York Times and Reuters
By taking a proactive approach to reducing non-tariff barriers and promoting sustainable economic growth, the UK can navigate the challenges posed by Trump’s tariffs and emerge stronger than ever.