Monday 7 March 2016
The argument for Britain’s exit from the EU, post-David Cameron’s negotiated deal, has largely centred on the legality and permanency of the reforms, and over more general questions of sovereignty, than over the larger, more central themes.
This rather narrow focus has contrasted sharply with David Cameron’s and the Remain campaign’s quick-off-the-block more broader and all-encompassing economic argument. It is a curious disparity that is possibly explained by the lack of agreement between the different Out campaigns over what Britain’s post-exit economy would look like. Would it take on a wholly global dimension with the UK weaned off its economic dependency with the EU, like a destructive crack habit that the Outers will warn an initial period of unpleasant ‘cold turkey’ will be necessary for the nation’s greater good in the long run, or would there be some kind of negotiated settlement and continuation in the UK’s economic relations with Europe? In which case the overwhelming likelihood is that there would be a continuation in some form or other of dreaded relations. Either way, and which ever view becomes the settled Out argument, if one does rise to the fore, UK trade, future growth and the economy will form one of the major fulcrums of debate during the nation’s historic decision.
David Cameron and the Remain campaign have taken no time in wheeling out big business to voice their belief that Britain is better off in a ‘reformed’ EU. Whether this will sway the average voter is another matter as big business is bound to find the EU’s huge internal single market beneficial to the selling of their goods and services. But does the average person in the street feel the benefit of the EU’s 510 million single market? Whether they actually benefit or not is largely irrelevant as they are unlikely to feel that they do.
The Out campaigns hit back saying they have letters signed by thousands of SMEs and small businesses indicating their wish to leave, citing red tape and invasive regulations that are barriers to growth. Yet the Outers’ business argument also has flaws. The specifics of the red tape and invasive regulations are suspiciously vague, encouraging speculation that these might actually relate to the protection of workers’ rights, including holiday and maternity and paternity regulations and health and safety law, ironically and paradoxically, things the average person in the street does notice and directly benefits from.
The weakness of both business arguments highlights the unreliability of relying solely on the business community to put the economic case for Britain remaining or leaving the EU. A more reliable indicator of what Britain’s economic role in the world is, and therefore indication of what its future economy would look like in or out, is UK trade figures. The figures are revealing and are readily available.
The UK’s global trade in goods and services in 2014, excluding banking, travel and tourism, was worth £906 billion to the UK economy according to the Office of National Statistics (https://www.ons.gov.uk/businessindustryandtrade/internationaltrade/datasets/internationaltradeinservicesreferencetables) and HM Revenue and Customs (https://www.uktradeinfo.com/Statistics/BuildYourOwnTables/Pages/Table.aspx). Of this, trade with the EU accounted for £436 billion, virtually half of the UK’s total world trade. Globally, UK trade carries a deficit of -5%, -15% when the dominant service sector is removed. The UK imports far more than it exports. Within the EU this figure is even more startling, with a goods-trade deficit of -20%, -13% when services are included.
Of the other 27 EU member states the UK maintained a 2015 merchant-trade surplus with only 6 other countries: Croatia, Cyprus, Estonia, Greece, Ireland and Malta, for a combined value of £7 billion. A paltry amount compared to the UK’s total trade in goods with the EU of £354 billion. Bulgaria was also a credit in 2014 but is now a deficit. Doesn’t strike confidence that Britannia can rule the global commerce waves as Outers would have you believe.
The UK’s largest goods-trade surplus in the world is with Switzerland (£13 billion), the U.S. (£10 billion), followed by the United Arab Emirates (£4.8 billion), Ireland (£4 billion and EU member, down from £6 billion in 2014) and Saudi Arabia (£3.5 billion). The fact that two of our five largest goods-trade surpluses are in the Arabian peninsular tells its own story. Britain’s largest goods-trade deficits in the world are with Germany (-£30 billion), China (-£18 billion), Norway (-£10 billion), Canada (-£5.6 billion), Turkey (-£4 billion), Japan (-£2.7 billion), India (-£2.1 billion) and Russia and South Africa with -£1.8 billion apiece.
Those campaigning for Britain’s exit argue that the UK’s chronic goods-trade deficit is something to revel in, that it is a good thing and something to be proud of because it ensures that the rest of the world will clamour to our door offering us trade deals on whatever terms we like. Our huge trade deficit will enable us to pick our terms, they say, and trade with any country we want at zero cost. This is extreme fantasy. The reality the figures reveal is an inherent and severe structural weakness in the UK economy. They reveal that Britain does not make enough of what the world wants. This is not “Project Fear” or Anglo-sceptism or Anglophobia. This is what UK trade figures tell us.
Outers argue that the EU is holding Britain back from being able to trade with the rest of the world, but considering Britain’s chronic goods deficit it is more likely that Britain’s membership of the EU, and access to its single market, has enabled Britain’s current degree of trade with the rest of the world, and that without it, Britain’s abysmal balance of trade figures would be even worse.
Outers argue that Britain would be able to trade more with the U.S., and Britain’s current £80 billion trade and £10 billion surplus with the U.S. is not insignificant. Yet this is more likely again to be a consequence of the UK’s membership of the EU, with reduced tariffs commensurate to single market benefits and standardisation. The UK-U.S. trade figure is also dwarfed by EU-U.S. trade of £487 billion, with an EU surplus of £97 billion (http://trade.ec.europa.eu/doclib/docs/2006/september/tradoc_122530.pdf). The EU and the U.S. are also currently negotiating a free trade agreement (TTIP) that would in all likelihood increase these figures still further, and this trade deal would still go ahead if Britain voted to leave the EU making it much more difficult for Britain to negotiate separate free trade agreements with both the US and the EU and or individual member states. The U.S. Department of Agriculture (http://www.ers.usda.gov/data-products/international-macroeconomic-data-set.aspx) also predicts that Britain will be the seventh largest economy in the world by 2030 (http://www.bloomberg.com/news/articles/2015-04-10/the-world-s-20-largest-economies-in-2030#media-2), with the department confirming that this prediction was based on Britain remaining in the EU.
It seems incredible then, with the vast global trading sums involved, that Britain would be able to negotiate free trade agreements on its terms. Much more likely would be unfavourable terms, with increased trading costs, higher prices and long-term economic disruption and harm the inevitable consequence.
Those in the leave camp also argue that Britain could flourish outside of the EU with increased trade with the Commonwealth and emerging economies, but the reality is that Commonwealth countries make up a tiny fraction of Britain’s global trade. Britain, for instance, has a -£5.6 billion goods-trade deficit with Canada. The figures for Australia are a surplus: £1.7 billion out of £5.9 billion traded in 2015. Yet these figures are still miniscule compared with global trade, and Australia has an ageing population of 24 million with a fifth forecast to be over 65 by 2050 (http://www.smh.com.au/national/australias-ageing-population-prey-to-abuse-20160224-gn2k7v.html).
The figures for China, too, are £18 billion in exports and £36 billion in imports. Trade with China is growing year-on-year, yet so is the deficit, and the figures are still dwarfed in global terms and by EU-China trade. Trade with India is also tiny with exports of £3.9 billion and imports of £6 billion, smaller than the UK’s trade with Hong Kong. Ditto Brazil, with £2.1 billion of exports and £2.4 billion of imports. These are the world’s emerging economies and their data reveals that they would nowhere near fill a UK post-exit EU-trade black hole.
The UK global goods trade, then, shows that Britain could only increase its trade with the rest of the world and ‘go it alone in the world’ by buying more things from China and from Canada. By buying more things from India and from Brazil, from South Africa and from Russia, from Turkey and from Japan, incurring huge debt that is unsustainable. The world does not want what the UK sells at the moment so why would it suddenly want our goods when we leave the EU? The truth is it wouldn’t.
The figures show that any argument that Britain could thrive without the EU is a fantasy and a dangerous delusion. The figures show the UK would do the opposite. This is the reality. The size of Britain’s EU trade would mean it would have to renegotiate with the EU, and considering the size of the EU on the global stage, it would hold all the cards. Britain would end up paying for access and accepting the terms and conditions without any influence or say over its running. The alternative for the EU is unimaginable: free, unfettered access to the single market without any of the terms and contribution and free movement of people? What about us, other countries would ask? Why can’t we have free access without any of the costs? It would be the end of the EU as a transformational political entity that has maintained the longest period of peace in Europe for over two hundred years. That’s why it couldn’t happen.
Britain’s global trade figures indicate that we do not make enough of what the world wants, and to try to undertake the lengthy and long-term rebalancing of our economy whilst at the same time leaving the largest economic trading block in the world would leave us rather than in a short-term period of ‘cold turkey’ but in a longer, more permanent, multi-generational deep-freeze malaise, searching forlornly for a new Opium Trail. The data is there for us all to see. We cannot say we haven’t been warned.