Britain will not be a “great global trading nation” without an EU deal

UK cities are critically dependent on European markets

February 06, 2017
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This week a government delegation will head to Washington to begin "informal talks" aimed at securing a UK-US trade deal—to come into play once Brexit negotiations with our erstwhile European Union partners have been concluded.

These talks follow the trade negotiation pact agreed by Theresa May with Donald Trump on her recent visit to the United States—a development almost entirely (and somewhat understandably) overlooked in the subsequent uproar around Trump’s travel ban on nationals from majority-Muslim countries, and yet one that represented a modest triumph for the prime minister.

Indeed, this apparent confirmation that the UK would be at the “front of the queue" for a deal with the US was the prize May had hoped for most as she set out across the Atlantic. Had Trump’s travel ban (and the prime minister’s apparent slowness to condemn it) not dominated coverage of the trip, May could have instead presented it as a step towards realising her vision of re-establishing Britain as a “great, global trading nation,” as outlined in her recent Brexit speech.

This rhetoric has also been echoed in the optimistic pronouncements of Cabinet colleagues such as Boris Johnson and Liam Fox, who have talked up Britain’s prospects of securing deals with countries across the world—while the government’s recent Industrial Strategy green paper featured a list of countries identified as keen to strike trade agreements with the UK as quickly as possible.

Undoubtedly, we will hear more about the government’s vision of a “Global Britain” as trade talks begin this week. However, as a new report by the think tank Centre for Cities shows, the government faces a huge challenge in turning this rhetoric about global trade into a reality. It also shows that trade deals with the US and other countries are less important to boosting economic growth around the UK than securing the best possible trade agreement with the EU.

The report, Cities Outlook, shows that UK cities are critically dependent on EU markets for exports, with 61 out of Britain’s 62 largest cities selling more goods and services to the EU than anywhere else across the globe. Exeter is the most dependent place on the EU, sending 70 per cent of its exports to European markets, while at the other end of the scale even Derby—the city least reliant on EU markets—still sells a quarter of its exports to EU countries.

Moreover, the report shows that British cities would have to dramatically increase trade with other international markets to compensate for any downturn in exports to the EU. For example, to make up for a 10 per cent decrease in exports to the EU, British cities would have to nearly double exports to China, or increase exports to the US by nearly a third. In total, the EU accounts 46 per cent of Britain’s urban exports, compared to 10 per cent for the six countries mentioned in the Industrial Strategy (Canada, China, India, Mexico, Singapore and South Korea) combined.

The implications are clear—securing good access to EU markets will be critical for the prosperity of cities and people across Britain, and so trade negotiations with the EU should be the government’s absolute top priority, ahead of deals with the US, China, and elsewhere.

Of course, some would argue these figures show the UK must focus on boosting trade with parts of the world where exports are currently low, and clearly we should be ambitious about increasing UK exports across the globe. This will be crucial in tackling the UK’s poor productivity levels, and boosting jobs and wages in places up and down the country.

But increasing trade beyond Europe should not come at the expense of sustaining and growing our exports to the EU, given its importance as a market for so many UK businesses. Restricted access to the biggest export market for UK cities will have a significant impact right across the UK. Certainly, the government needs to avoid a situation where it is seeking to increase exports to non-European markets in order to compensate for the loss of trade to the EU.

Ultimately, the prime minister faces a challenge in reconciling her rhetoric about global trade with her domestic ambitions of raising growth and prosperity through the industrial strategy. If she is to succeed in boosting growth, wages and living standards for people and cities across the UK, her vision of a “Global Britain” has to be built on the foundation of the best possible EU trade deal that the government can secure.