Trade deals will take time
And bring threats as well as opportunities
The two Chinese characters for “crisis” (Wei Ji or danger opportunity) neatly summarise the challenge for Theresa May’s government on trade.
The danger lies in the possible threat to our services, Single Market access, and the “passporting” of London-based businesses. The opportunity is in bringing back in-house, after 40 years of outsourcing, all our trade agreements; of focusing more on growth markets; and of revitalising the Commonwealth through trade. What’s the balance between the danger and the opportunity?
During the referendum campaign both sides exaggerated their positions: on the one hand, Brexiters talked about abandoning sclerotic Europe for a more dynamic world outside; and on the other, Remainers persuaded foreign governments to suggest that we’d be at the back of the queue for future agreements. The truth is more nuanced. We need both to maintain and grow our exports to Europe (currently 44 per cent of the total) and be as proactive and successful as we have been with China in other markets.
Liam Fox, the new Secretary of State for International Trade, is already playing some cards. A coalition of Commonwealth partners, frustrated by our restrictions as an EU member, can be built up before and during the Commonwealth Trade Ministers’ London meeting early next year. But Fox knows that if we’re to make real progress Asia has to be a high priority. An interesting study by Peter Mandelson’s Global Counsel measures different criteria against which to prioritise markets with whom we should work more closely. In aggregate the US and Asia come out very high.
I’ve just come back from talks with the governments in Hong Kong, the Philippines and Singapore and with the ASEAN Secretary General and there is a lot of enthusiasm at the highest levels for expanding the existing business relationships. Already we are the largest European investor in these markets, accounting for over half of the 19 per cent of inward investment in the region from the EU and their need for investment continues apace.
This is encouraging, and there are exciting bilateral opportunities with Japan, which may feel that in our rush to create strong ties with China we undercherished older regional friendships.
But I would caution against getting ahead of ourselves. A complete free trade agreement with China, for example, may be a long-term ambition but is not without risks on both sides, as our own steel sector knows so well. Judging by the mooted timetable of Brexit, we shouldn’t expect new trade deals to go live until the last year of this parliament.
Meanwhile, good business is being done. In July, BP signed off on a further $8bn investment in Indonesian off-shore gas, creating 10,000 jobs there while generating a partly UK supply chain and long- term earnings that support many British pensioners. AirAsia generated the largest single order for Airbus at the Farnborough Air Show. While we may be leaving the EU we remain a part of the Airbus enterprise, and aerospace demand in Asia will be strong for years.
David Cameron’s government supported business, increased export help in growth markets and encouraged more small and medium-sized enterprises to export. But we still lag behind Germany and our balance of trade has weakened, so the new government has its work cut out. It has started with a new Department for International Trade and showing a commitment to growth markets.
I hope we will hear more of this narrative at October’s Conservative Party Conference. It’s important that we get the message across that business growth is about jobs and raising tax revenue for public services: currently 75 per cent of our tax comes from business. Exporting is not just nice to have, it’s essential to the May government’s mission of improving our standard of living and our public services across the UK.
Graham spoke at our event “What is the Future of British Trade?” on the 4th of October at the Conservative Party Conference. Find the complete coverage of our 2016 conference programme here
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