In the aftermath of the UK general elections, we begin to focus our attention on the rhetoric which ultimately led to the conservative victory: “Get Brexit Done”. Three years since the 2016 referendum, it continues to hit headlines (pushed aside by the Sussexes and world events), with businesses continuing to navigate in the dark without further transparency. The meaning of Brexit ultimately differs for each individual. It is really quite difficult to fully understand the effects of any scenario.
As a remainer, the idea of leaving the European Union is frustrating. Membership brings substantial benefits, most of which I, like many people, take for granted. There is little indication how this may change, so to some degree it would be hard not to feel robbed should we, on a individual basis, end up in a worse position. That being said, I’m positive about the future and below are a few facts which may sway you to side with my optimism.
1. In 2018, c.51% of the UK’s trade was with non-EU countries of which only c.22% was negotiated under EU tariffs (https://www.bbc.co.uk/news/uk-47213842)
EU trade represented less than half of the UK trade in 2018. In reality this could be even less. Many readers may be aware of the Rotterdam effect which describes the inflation of trade statistics due to the inclusion of quasi-transit goods. For example, goods from non-EU countries which pass through EU ports (such as Rotterdam), clear EU customs before onward travel within the EU customs area. This flow of trade is ultimately recorded as UK-EU trade, skewing results. In reality, the 49% EU-UK trade figure could be substantially less.
What is more surprising is that trade with the EU has represented less than 50% for more than a decade (https://fullfact.org/europe/uk-eu-trade/). In fact, according to the ONS, the latest trade figures show that exports to non-European countries grew by c.4% in comparison to a rise of c.1.6% to EU member countries. Of course, the EU remains an important market for the UK but, globally, the EU’s share of the world economy has been declining due to the substantial growth in developing countries.
2. According to The Institute of Exports, the UK exports c.17% more (by value) to non-EU countries than EU countries – a figure which is growing. (https://www.export.org.uk/news/472306/Increase-of-UK-exports-to-non-EU-countries.htm)
Since 2009, the EU has traded in a deficit with the EU, with European countries selling more to non-EU countries than those within the EU. In the year ending June 2019, exports in the last 12 months to the United States and China grew by c.10% and c.14% respectively. Combined, both countries represented over 19% of the UK’s exports in 2018 (http://www.worldstopexports.com/united-kingdoms-top-import-partners/). In fact, this trend is likely to continue.
Trade with the US is currently under tariffs negotiated by the EU. Despite these tariffs, the UK-US relationship is strong. The US is by far the largest importer of UK goods and is the single largest investor in the UK, representing c.26% of outstanding foreign direct investment into the UK (ONS).
According to the Burges Group, non-EU/UK trade contributed c.£52bn to the UK economy from 2000-2017 (https://www.brugesgroup.com/blog/economic-impact-of-uk-trade-with-the-eu-and-non-eu-countries-2000-2017). Evidence suggests that trade with non-EU countries has been successful despite no EU trade agreements in place. More importantly, there is no reason why it should not continue or, for the better, grow.
Under a no-deal Brexit The Confederation of British Industry (CBI) estimates that c.90% of UK’s goods exports to the EU, by value, will face tariffs. The average tariff on UK exports to the EU is estimated at c.4.3%, although tariffs in other sectors such as food and car manufacturing could be considerably higher. It is argued that these price increases could likely be offset by FX but, as ever, only time will tell.
3. Most of the world’s growth will come from developing countries
PWC has projected that six of the seven largest economies by 2050 will be emerging economies such as China, India, Indonesia and Brazil (https://www.pwc.com/gx/en/issues/economy/the-world-in-2050.html) . Why this is the case will come as no surprise; it is estimated that c.85% of the worlds population live in an emerging economies, most of which have a younger population than G7 developed nations. For example, the average age of a person in Germany is c.47 years compared to India which stands at c.28 years. The shift in demographic is leading to a population with a greater number of individuals able to work. Coupled with advances in technology and increasing literacy, emerging markets are fueling global economic growth.
There is no doubt that the EU and UK make up a significant proportion of their respective export market and, whilst this is important to their individual economies, withdrawal from the European Union is not end all. Advances in transportation and communication technology in developing countries where modern technologies do not yet exist – or in their infancy – will only facilitate further trade with developing nations. Adaptation will inevitability play a key role: in Brexit there lies opportunity.
In the run up to October 31, exports to non-EU countries are growing twice as fast than those to the bloc, driven in large part by major non-EU trading partners including the USA and China, with total trade with the USA surpassing £200 billion for the first time.