There's more to Britain's economy than just services

Don't forget—we're manufacturers too

Germany exports five times as much to China as Britain does. EU rules don't hold back German exporters—why should Britain be any different?
April 20, 2018

Brexit has pushed trade policy to the forefront of British politics and, because I represent a constituency in the northeast of England, which is the most successful exporting region outside London, I take a particular interest.

The northeast is still a substantial manufacturing centre, developing sophisticated products which require intensive research and development, such as pharmaceuticals and chemical products, as well as automobiles. This makes the region especially vulnerable if the government can’t get a good Brexit agreement.

I am often struck by how many people forget about Britain’s manufacturing strengths and assume ours is an economy made up exclusively of services. It is not.

And half of our exports go to Europe, which means that the government’s decision to leave the customs union is especially shattering. Not that this is especially obvious at the moment. That’s because we are currently in a sweet spot where exporters are benefiting from the improved competitiveness of a lower pound—their products have suddenly become cheaper for overseas buyers—and no new trade barriers have been erected.

But when those new trade restrictions are put in place, the practicalities and costs associated with this will exert a huge drag on businesses, especially those with complex supply chains. Businesses in my constituency will feel the pinch.

The government claims that Britain needs to leave the customs union in order to get better trade deals—but this is nonsense.

First, Germany exports five times as much to China as Britain does and it does this from within the EU, while subject to all the rules that the government claims are so restrictive. They don’t seem to hold back German exporters—why should British businesses be any different? Second, the EU has trade deals with 57 “third countries.”

Currently the government is hoping to take on these trade arrangements and renegotiate as it sees fit. There is no clear reason to think new deals would be better than the ones Britain currently has as an EU member. Other countries will also belong to regional blocs, like Asean and Mercosur, which have to reach an internal consensus first before doing any deal with Britain.

Liam Fox, above, in particular, seems to be living in a fantasy. He has spoken of “post-geography trade,” a notion that defies both the tenets of economics and basic logic. Nations trade with their neighbours because it’s easier and cheaper. (It’s the difference between sending a shipment of cars to France or to, say, Australia.) That’s why Ireland is a more valuable trading partner for the UK than Italy or Spain, despite Ireland’s economy being much smaller.

As for agriculture, if Britain wants to sell to the EU market, most of the regulations on food safety, such as ID tags for animals, will have to stay.

Trade hasn’t just shaped our economic and industrial structure, it’s also shaped our landscape, our regions and our international relations. We need a far more careful and considered approach than the “I’m not bovvered” approach of Fox, David Davis and this tottering government.