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| Leaving the EU will be bad for trade, but a secret Brexit will be worse | Leaving the EU will be bad for trade, but a secret Brexit will be worse |
| (35 minutes later) | |
| One of the worrying aspects of the Brexit process is that discussions about the UK’s future trade arrangements, and the wider economic goals and ambitions of Brexit, are taking place behind closed doors, and by government departments feeding self-serving information to the media. | One of the worrying aspects of the Brexit process is that discussions about the UK’s future trade arrangements, and the wider economic goals and ambitions of Brexit, are taking place behind closed doors, and by government departments feeding self-serving information to the media. |
| Parliament should be allowed to inform itself, review and help to start frame this debate as a matter of urgency before article 50 negotiations, that is, before next March, according to the prime minister, Theresa May. | Parliament should be allowed to inform itself, review and help to start frame this debate as a matter of urgency before article 50 negotiations, that is, before next March, according to the prime minister, Theresa May. |
| As the Guardian revealed earlier this week, the Brexit cabinet committee has been presented with findings considering the trade and economic consequences for the UK of leaving the EU and the customs union. The suggestion that exports to the country’s 10 largest non-EU trading partners would have to grow by 37% by 2030 simply to compensate requires open and informed debate as to how this is to be realised, even if the numbers are only approximately right, given the likely economic circumstances surrounding world trade over the next several years. What happens to trade and to related foreign investment inflows is hard-wired into the productivity and living standards of citizens. | As the Guardian revealed earlier this week, the Brexit cabinet committee has been presented with findings considering the trade and economic consequences for the UK of leaving the EU and the customs union. The suggestion that exports to the country’s 10 largest non-EU trading partners would have to grow by 37% by 2030 simply to compensate requires open and informed debate as to how this is to be realised, even if the numbers are only approximately right, given the likely economic circumstances surrounding world trade over the next several years. What happens to trade and to related foreign investment inflows is hard-wired into the productivity and living standards of citizens. |
| In her recent party conference speech, the prime minister left little doubt that the UK would not remain in the single market. Business and finance must work on the assumption that the disruption to trade in goods and services and investment will be greater as a result. Leaving the customs union, and reimposing border controls still hang in the balance, apparently, but the UK cannot make its own trade deals unless Brexit happens. | In her recent party conference speech, the prime minister left little doubt that the UK would not remain in the single market. Business and finance must work on the assumption that the disruption to trade in goods and services and investment will be greater as a result. Leaving the customs union, and reimposing border controls still hang in the balance, apparently, but the UK cannot make its own trade deals unless Brexit happens. |
| The most likely outcome is that reduced bilateral trade with EU countries, secondary effects such as broken supply chains – for example in the automobile and engineering industries – lead to a significant shock. This would doubtless extend to service sector exports, which represent almost 45% of the UK’s total exports and generate a surplus of 5% of GDP, offsetting half of the deficit on goods trade and investment income. | The most likely outcome is that reduced bilateral trade with EU countries, secondary effects such as broken supply chains – for example in the automobile and engineering industries – lead to a significant shock. This would doubtless extend to service sector exports, which represent almost 45% of the UK’s total exports and generate a surplus of 5% of GDP, offsetting half of the deficit on goods trade and investment income. |
| If the estimated requirement for 37% growth in non-EU exports, say from 2019 to 2030, is about right in order to balance the UK’s books, then the implicit compound rate of growth of about 3% per annum seems rather tame. Exports to non-EU countries grew by 5.8% per annum between 1999 and 2015, according to the Office for National Statistics. | If the estimated requirement for 37% growth in non-EU exports, say from 2019 to 2030, is about right in order to balance the UK’s books, then the implicit compound rate of growth of about 3% per annum seems rather tame. Exports to non-EU countries grew by 5.8% per annum between 1999 and 2015, according to the Office for National Statistics. |
| We should remember, though, that the trade environment in the next decade or so will look nothing like that of the historical period in question. Until just after the financial crisis, world trade grew twice as fast as world output, or about 7% annually in volume terms and nearly 10% in value. UK export growth to non-EU countries in the most expansionary world trade environment imaginable was not much more than half the rate of world trade growth. | We should remember, though, that the trade environment in the next decade or so will look nothing like that of the historical period in question. Until just after the financial crisis, world trade grew twice as fast as world output, or about 7% annually in volume terms and nearly 10% in value. UK export growth to non-EU countries in the most expansionary world trade environment imaginable was not much more than half the rate of world trade growth. |
| Things look markedly different nowadays. World trade is stagnating. The trend is so prolonged that it can not be ascribed to cyclical factors. Commodity markets and trade have rallied a little this year, helping beleaguered producers a little, but the boom is over for the foreseeable future. | |
| As China’s domestically sourced supply of parts and components has risen over the past decade, this particular share of the country’s total imports has halved. We can think about these trends as part of the deglobalisation narrative, in which cross-border international lending and trade financing is much reduced, and foreign direct investment as a share of global GDP is running at half the rate recorded at the peak in 2007. | As China’s domestically sourced supply of parts and components has risen over the past decade, this particular share of the country’s total imports has halved. We can think about these trends as part of the deglobalisation narrative, in which cross-border international lending and trade financing is much reduced, and foreign direct investment as a share of global GDP is running at half the rate recorded at the peak in 2007. |
| If Brexit means Brexit, the debate about trade deserves the fullest possible transparency | If Brexit means Brexit, the debate about trade deserves the fullest possible transparency |
| Outside the single market and customs union, the UK would have to make strenuous efforts to penetrate the US and Chinese markets more deeply. These two countries account for half of UK exports to the non-EU countries among our top 25 trading partners. Yet the increase in US imports has flattened out as the country’s potential growth rate has dropped, and China’s imports are similarly on a weaker trend in line with slowing growth. A period of even slower growth is likely in the next few years. Most of the rest of the UK’s non-EU trade is with Norway and Switzerland, which will retain single-market relations with the EU, and with the Middle East, whose import potential is also constrained because of what appear permanently lower energy prices. | Outside the single market and customs union, the UK would have to make strenuous efforts to penetrate the US and Chinese markets more deeply. These two countries account for half of UK exports to the non-EU countries among our top 25 trading partners. Yet the increase in US imports has flattened out as the country’s potential growth rate has dropped, and China’s imports are similarly on a weaker trend in line with slowing growth. A period of even slower growth is likely in the next few years. Most of the rest of the UK’s non-EU trade is with Norway and Switzerland, which will retain single-market relations with the EU, and with the Middle East, whose import potential is also constrained because of what appear permanently lower energy prices. |
| All this is in stark contrast to the common image of swashbuckling UK ministers travelling the globe to strike up new trade deals . We can do this to a degree, but our track record is not great; we do not have an export-focused Mittelstand, as Germany does, and the world trade environment is weak and more protectionist. | All this is in stark contrast to the common image of swashbuckling UK ministers travelling the globe to strike up new trade deals . We can do this to a degree, but our track record is not great; we do not have an export-focused Mittelstand, as Germany does, and the world trade environment is weak and more protectionist. |
| If Brexit means Brexit, the debate about trade deserves the fullest possible transparency. The government should without delay allow parliament to harness and digest the best possible information, and take a prominent role in framing what is to be done in the country’s name, and how to mitigate the consequences of leaving the EU. | If Brexit means Brexit, the debate about trade deserves the fullest possible transparency. The government should without delay allow parliament to harness and digest the best possible information, and take a prominent role in framing what is to be done in the country’s name, and how to mitigate the consequences of leaving the EU. |
| •George Magnus is a senior independent economic adviser to UBS and associate at Oxford University’s China Centre |
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