New Game, Old Rules? Why the UK’s Board of Trade needs to learn fast.
Dr. Rebecca Harding
CEO, Coriolis Technologies
The Board of Trade’s full name is the ‘Lords of the Committee of the Privy Council appointed for the consideration of all matters related to Trade and Foreign Plantations’. It captures the essence of British Imperial history from 1660’s colonialism when it was established, through the expansion of the British Empire in the 19th Century (it features in Antony Trollope’s Phineas Finn, published in 1867-8, for example), through a period of “furlough” after the UK joined the European Community in the 1970s. In 2017 after the Brexit referendum it was relaunched as the main body representing the UK’s desire to promote global free trade. Last week, the former Australian Prime Minister, Tony Abbott, was appointed as an adviser.
Expect to hear more from the Board of Trade in the coming months as the UK ends its transition period. The game it is playing now is a new one: no longer is it protecting our interests abroad. Nor, apparently is it even about promoting the UK’s commitment to free trade within the multilateral rules-based economic order, as it was three years ago. Rather, its role now is to promote exports, inward investment and outward investment in the interests of economic growth.
To achieve this goal, it will have to deal with the reality of the UK’s trade position and the changing nature of trade. This will define the rules in three key ways.
First the UK is in a relatively weak trade position. Its trade has fallen in value terms since the Global Financial Crisis: in 2008 UK exports were worth $733bn. In 2019, just before the ravages of Covid-19 in 2020 hit, the value of UK exports was $729bn. UK exports to the US have grown sharply in the last year to the end of 2019 but were falling at an annualised rate of 3.2% to 2018. But exports to the EU have fallen back by nearly 2% annually since 2014. As a measure of how much the UK has declined as a trade power, in 2019 UK exports as a share of world trade were just 2.3%. This is a drop of over 50% over the last 20 years.
Second, intra-regional trade is becoming an important feature of the trade landscape. This is not just a feature of Covid – it has been happening for a number of years. For example, intra-Asian trade grew at an annualised rate of 6% between 2016 and 2019 and in North America grew by 4.2%. Amongst the EU27 (excluding the UK), since 2016 intra-regional trade grew by 7.7%, and in key sectors annualised growth was faster: automotives was 10.3%, in machinery and components was 7.9%, in pharmaceuticals was 9% and in electronics was 8%.
In contrast, the UK’s exports to the EU in these sectors have fallen back over the same period and annualised: automotives – –0.9% in automotives, –1.5% in electronics, and -2.5% in pharmaceuticals. While there was annualised growth of nearly 3% in machinery and components, this is nevertheless a significantly lower level of growth than intra-regional trade amongst the EU 27.
Finally, China’s drive to self-sufficiency alongside the sustained US-China trade conflict means that the UK cannot rely on exporting more to China as an alternative to Europe. Over the past three years, exports have grown by a modest 1.5% annually compared to 15% annualised growth immediately after the financial crisis. That growth was driven by the automotive sector but as China’s own manufacturing capacity grows, including in the production of the new electric mini, it is likely to become more self-sufficient. More than this, the UK has started to use more belligerent language towards China and has aligned with the US in its approach to Chinese technology generally and Huawei in particular. While this may have short term advantages in terms of a trade deal with the United States, the threat of retaliation from China cannot be ignored, as Mr. Abbott’s Australia has discovered already.
The UK’s Board of Trade harks back to a colonial and Imperial era. This gives the impression that the trade “game” is the same as it ever was – export more to win. Such “zero sum” thinking is evident in current negotiations with the EU and is built into the Board of Trade’s remit: “to export more in the interests of UK growth.”
The current stalemate in negotiations between the EU and the UK may yet break – it is in the interests of everyone to find a solution in the interests of businesses on both sides. The likelihood of this happening may seem small, given the economic nationalism that has taken hold in the UK, and the adherence to rules that was inevitable in the EU. For it to break, UK negotiators need to understand the challenge posed by the fact that we are no longer the trade power we were. This will mean learning the rules of the new strategic trade game fast and accepting that influence is a greater prize than winning at all costs.