Fox hopes for dramatically increased trade with far flung nations post-Brexit—but there's a problem with this strategyby Matthew Bevington / January 10, 2018 / Leave a comment
Geography no longer matters in international trade. This is the view of International Trade Secretary Liam Fox, who has said that we now live in a “post geography trading world.” New technology in transport and communications “has reduced the barriers of distance and time,” making proximity less relevant in the modern trading era.
What is more, goes the Fox view, the UK is a mainly services economy, and exports of such services, like accountancy, advertising and consulting, are more mobile than traditional goods. This is because these services can often be delivered remotely, so geographical location is less of a barrier. The UK’s comparative advantage in many services means it is ideally placed to export more of them when freed from the regulations of the EU single market.
The theory goes that the fast-growing regions of the world have demand better suited to UK services expertise than Europe, whose services-based economies are similar to the UK’s. Developing economies may have an advantage in manufacturing and production, with cheap labour and natural resources, but they lack the services expertise in which the UK specialises.
In particular, Liam Fox has his sights set on the economies of Asia. Indeed, the IMF’s latest World Economic Outlook report projects emerging and developing Asia as heading for 6.5 per cent growth in 2017‑18, falling to only 6.3 per cent by 2022—easily the strongest growth region in the world.
“Liam Fox has said that we now live in a ‘post geography trading world'”
The conclusion is seemingly a simple one: once the UK has left the EU, it should reorient its trade to the areas of the world that require UK expertise and are growing rapidly.
Unfortunately, it is not so simple. For a start, the UK’s goods exports are worth a similar amount to its services exports. Although services dominate the economy as a whole, the external economy is more evenly split, as much of the services sector is inward-facing. Moving physical items over distances therefore remains an important challenge for UK producers, not overcome by developments in communications. Neither distance nor time has disappeared.
More importantly though, the effect of distance on trade is one of the most reliable theories in economics. It is known as the gravity theory of trade, where the further away an…