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This month the UK has signed trade deals with India, the US and the EU. At a time of worry about the prospects for world trade, this should be a reason for feeling less depressed about the outlook for Britain. But the deals, while better than none, might not merit even one cheer.
The deal with the US will merely limit the damage done by Donald Trump’s trade war, one that is particularly unjustified in the case of a loyal ally that does not even have a bilateral trade surplus in goods with his country. The other two are marginal liberalisations. In all, the UK’s trade opportunities have been unambiguously worsened since Brexit and now Trump’s trade war, relative to what they were before 2016.
Any improvement in market access might seem a good thing. But it can easily not be good enough, because the deals themselves are too small or because the performance is too feeble. In “A perfect storm: Britain’s trade malaise, weak growth and a new geopolitical moment”, published by the Centre for European Reform last week, Anton Spisak lays out the latter story.
Between 2019 and 2024, the volume of UK trade grew at a compound annual rate of only 0.3 per cent. This compares terribly with the 4.9 per cent achieved between 1980 and 2008 and the 2.6 per cent achieved between 2008-19. Declines in growth rates also occurred in France, Germany, the EU, Japan and the US since the financial crisis and even more so since the pandemic. But the UK’s growth between 2019 and 2024 was well below that of those other economies — 0.7 per cent for France, 0.8 per cent for Germany, 1.9 per cent for the EU, 1.4 per cent for Japan and 2.4 per cent for the US. For an open economy such as the UK’s, a trade performance this poor is truly worrying.
Not surprisingly, exports have, for the first time in decades, become a net drag on the UK’s economic growth, rather than a contributor to it. Thus between 2020 and 2024, the average contribution of exports to real economic growth was minus 0.4 percentage points.
This dire performance was driven by what was happening to exports of goods: in real terms, they were 20 per cent lower in the fourth quarter of 2024 than five years before, while exports of services rose by 22 per cent over the same period. Yet, surprisingly, the performance of UK exports of goods to the EU, which were down 19 per cent over this period, was much the same as that of exports of goods to the rest of the world, which were down by 20 per cent. It is indeed puzzling that exports have fallen to a very similar extent to the EU and the rest of the world. One fairly plausible explanation is that supply chains from the EU have been disrupted and that has undermined the competitiveness of UK goods in third markets.
Whatever the causes, a trade performance this poor will, if continued, inevitably undermine economic growth, not least via its impact on productivity growth. Unfortunately, there is only one element in the three deals in question that could possibly bring about any noticeable improvement in trade performance. That is the decision of the US to keep in place the 10 per cent tariffs on most British exports. Last Friday, Trump even proposed a 50 per cent general tariff on EU exports to the US. Earlier this month, he also agreed a 30 per cent tariff on China.
Such blatant discrimination violates the most fundamental principle of the World Trade Organization. Yet, on the face of it, this situation might be beneficial to the UK. Two rather large caveats to such optimism can be identified, however. One is that this relatively favourable relationship might shift many times. The other is that even a 10 per cent tariff is about four times higher than average US tariffs used to be before this presidential term. So UK exporters of goods to the US, while perhaps in a favourable position relative to those from China and the EU (and maybe many others), will be at a big disadvantage vis-à-vis domestic US producers.
Moreover, the deal with the EU, welcome though it is, will not change the situation on trade to any significant extent. The main exception is the agreement to work towards an agreement to ensure that the “vast majority” of agrifood exports to the EU will happen without checks or certificates. Yet, in the end the UK is never going to get rich by expanding exports of farm products.
What we are seeing then is an economy whose trade performance is dire, above all in goods. This reflects an underlying loss of competitiveness and dynamism. A possible response would be deeper integration with the EU. More important still would be to focus all attention on strengthening the underlying fundamentals of economic performance for an unfriendly world.
martin.wolf@ft.com
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