Brexiteers talk about forging a new UK/US trade agreement but what does this mean?
There is no doubt about it—the United States of America is a big market for British goods and services. It’s the UK’s biggest single country trade partner in fact. Latest statistics from the Department for International Trade say that total imports and exports between the two countries totalled £199.5-billion in the year to the end of March 2019. What’s more, the UK runs a trade surplus with the US, one of the few major economies with which it does so. British exports of goods and services totalled £121.6-billion while imports amounted to £77.9-billion.
Some 54% of UK exports were of services and 46% were goods. Significantly, in the same period bilateral trade increased by nine per cent with exports increasing faster than imports. This means the trade gap in favour of the UK is widening. This last statistic needs to be regarded with a little caution however, as in March this year the value of the pound against the US dollar fell from around 1.42 to 1.31. This would make UK exports about 8% cheaper, all else being equal, so we could expect them to be more attractive. So hooray for the Brits then.
Big markets
Another important statistic to bear in mind is that the US is a large market. It’s a big target to aim for. It’s worth bearing in mind however that although in July 2018 the CIA World Factbook estimates that it was home to 329-million people, the world’s third largest. The comparable headcounts for China and India are 1,4-billion and 1,3-billion respectively. With these countries Britain runs very large trade deficits and relative export performance is rather poor.
This is where the Brexiteers’ US trade argument starts to come unstuck. That’s because it is based on an unsubstantiated view that what we gain in the way of new trade with US will offset in some way what the UK may miss out on because of the loss of Single Market membership. And then there’s the special relationship…
So let’s look at the EU stats. Firstly, the EU is very big market. The 27 other EU countries have a combined population of around 445-million according to Eurostat the EU’s statisticians, 35% larger than the US and the world’s third largest market by population. A fairer comparison might be with the NAFTA countries where the US forms a trading bloc with Canada and Mexico, except that it doesn’t function in the same way as the EU and anyway, President Trump has largely abandoned it, calling it “the worst trade deal in the history of the country.”
The EU’s free movement of goods principle, its ring-fenced tariff union, common trade standards and relative ease of communication and transport make it more accessible than the US. Unsurprisingly then the EU is by far the largest trading partner the UK has. The latest set of full year trade statistics from the Office of National Statistics’ “Pink Book,” which differs somewhat from the latest US trade numbers mentioned above, shows that in the year to end 2017 total EU trade amounted to £615-billion versus £183-billion for the US. That’s three times as much. The UK ran a trade deficit of £67-billion in that period but the EU still bought £274-billion of UK goods and services, roughly two and a half times exports to the US.
This suggests that to do anything that imperils that much trade in favour of a much smaller trading partner makes no sense. Much better, surely, to grow both as markets for UK goods and services.
Politics ends at home
Let’s try an experiment. Without wishing to pry, I’d like you to consider your latest bank and credit card statements. Do any of the following appear: Amazon, Apple, Dell, Dropbox, Google, Netflix, Microsoft or Spotify? If you’re anything like me then the answer is a resounding “yes.” We could also look at whether we buy from time to time or own any items from brands such as the following: Burger King, Coca Cola, Ford, General Motors, MacDonalds, Nike, Starbucks, Subway.
Is it likely that the average American has any British brand names on his or her bank and credit card statements or buys or owns a significant amount of goods and services bearing UK brands?
What is actually happening is not trade in the traditional sense of goods and services flowing to and from nations. In fact what we are experiencing is a form of economic colonisation. The UK is massively outgunned by the US in modern trade terms and none of this appears on the trade stats because although ultimate profits may be repatriated, the technology and accountancy of twenty first century trade means that it happens differently.
UK governments should think more carefully about what they wish for when it comes to opening more doors to the US in trade talks
Various politicians make great play at supporting the US when it comes to anti-Chinese rhetoric and whether China is infiltrating the UK’s core infrastructure. In fact the country is already dependent to a very high degree on American businesses. What I am suggesting is that UK governments should think more carefully about what they wish for when it comes to opening more doors to the US in trade talks. They should think more about diversifying their export markets rather than concentrating them. This way dilutes US influence and protects trade from over dependence on a market now driven by sudden impositions of terms set by the whim of an unpredictable leadership.
There is little evidence that the current bunch of UK politicians on all sides of the House has any practical grasp of what constitutes trade or real people’s economics. The buying habits of UK consumers and the infrastructure needed and used by UK individuals and businesses tell a story. It is that they are substantially under US influence. We could say “control.”
The dialogue on the trade agreement has been coloured by chlorinated chickens and whether the NHS will become a conduit from American drugs but this misses the point. The real story is that the UK is hugely disadvantaged in any trade discussions and the “$pecial realtion$hip” in 2019 is more about US brand marketing, technology and sales that leach away British cash on a nationwide scale, than about the beaches of Normandy.
Just look back at those credit card statements, work out how much you spend, times that by a significant proportion the UK population and you’ll see what I mean.