Dr Rebecca Harding, CEO
The UK stands to gain in trade terms from the current outbreak of novel coronavirus (Covid-19). It turns out that the world’s current obsession with personal hygiene plays to its advantage: it is a net exporter of both toilet paper and hand sanitiser – export values in 2018 were US$129mn for toilet paper, and US$455mn in hand sanitiser. As the world’s 11th largest exporter of toilet rolls and 4th largest exporter of hand sanitiser, at least if our supply routes shut down, we will be able to keep calm, stop exporting, and carry on.
But it also turns out that these two products are a microcosm of the opportunities, and the challenges, that the UK will face as it publishes its first trade deal draft. Let’s take the opportunities first. Exports of hand sanitiser grew by just 0.6% annually beteen 2013 and 2018. Coriolis Technologies is expecting a much higher than trend growth in exports in 2020 of 4%, dominated by increases in trade to our largest export partners: Saudi Arabia (9.7%), Ireland (2.6%) and Russia (1.2%). The EU accounts for 44% of UK hand sanitiser exports, which is slightly below the average for our trade as a whole, and Saudi Arabia and Russia alone account for nearly 13% of our hygiene-related trade. Perhaps this is one example where non-EU markets are offering us opportunities abroad.
However, the challenges are evident in this market as well. Fully 70% of the EU dominates our export partners, with Germany (US$7.1mn) and France the next largest markets. , while Ireland is a net importer of toilet paper and is 80% dependent on the UK. This serves to illustrate just how important borderless trade on the island of Ireland is.
There is a serious point to be made here, however. The coronavirus impact has been two-fold: first, it has accentuated the degree to which the global trading system is integrated and inter-dependent. From iPhone components to supplies of hygiene products, the threats to supply chains of any delays have been evident. While the world deals with the impact of a public health crisis, UK negotiators have an opportunity now, more than at any other time, to understand that, while we have a comparative advantage in some sectors, such as toilet rolls, we are disadvantaged in others – like car components or electronic equipment – and are dependent on the EU as much as the EU relies on us.
The second impact of the coronavirus crisis has been to point out the fact that uncertainty has in no sense gone away. There is no immediate reason to suspect that trade will not recover. Of course, at present, there are severe blockages in supply chains and inventories are at record lows. But this is not the global financial crisis all over again. At the beginning of the year, the International Monetary Fund (IMF) and the World Trade Organization (WTO) were optimistic about trade and economic growth in 2020. The severe drop in global markets following the oil price collapse on Monday and the downgrading of economists’ forecasts for the global economy in 2020 underlines the ease with which the effects of the US-China trade war, Brexit, emerging market debt and geopolitical tensions can brought to the surface by a “black swan” event. If the fundamentals are strong, then a supply-side shock, however random, should not affect demand over the longer term. Yet demand- and supply-side behaviours at present suggest no-one really believes this. We are in danger of creating yet another policy-induced crisis which again affects some groups and communities more than others.
Against this backdrop, the UK’s budget and its negotiations with the EU have to take into consideration more than just the political visions of “taking back control”. They have also to consider the of global trade – we are interdependent whether we like it or not. The coronavirus outbreak has thrown this interdependency into sharp relief and the UK, as a nation accounting for just 2.5% of global trade, is nowhere near as powerful as its dominance of the toilet paper and hand sanitiser market may suggest. Negotiators have a responsibility not to disrupt supply chains – for the sake of businesses and for the sake of the economy more generally. A negotiating stance that leads to supply chain delays or increased costs of trading could, literally leave us, and our European partners, stranded.