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Is the UK a ‘fat and lazy’ trading nation?

'From a trade balance perspective, we're underperforming the likes of Greece,' says James Ashton-Bell of the CBI - Getty Images
'From a trade balance perspective, we're underperforming the likes of Greece,' says James Ashton-Bell of the CBI - Getty Images

Any hopes of the country reinvigorating its international trade efforts post-Brexit will mean tackling the gap between imports and exports.

Trade minister Liam Fox complained recently that British businesses were too “fat and lazy” to pursue exports. “We were a country
that was the world’s top global trading nation," he said. "We've fallen behind… our European partners and we've fallen behind in that global race."

Exports account for almost 30pc of Britain’s output, making it a focal point of economic policy. Yet the UK has been in a trade deficit with the rest of the world every year since 1998. This imbalance places more responsibility for growth onto the shoulders of consumers.

A trade deficit can also be a symptom of business activity shifting
from one country to another: a theme that protectionist politicians such as Donald Trump have seized upon as a sign of national weakness.

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Mr Fox has targeted a near-doubling of exports to £1trn a year by
2020, although he recently conceded that the target is unlikely to be reached, as Brexit talks complicate new trade relationships.

“Ministers tend to say that we're a great trading nation," says James Ashton-Bell, head of trade and investment at the CBI. "Historically, that may be the case, but using the measure for the past 20 years, our exports simply don’t match up.

"That's quite problematic if you’re a UK business with more suppliers than customers. From a trade balance perspective, we're underperforming the likes of Greece.”

What is a trade deficit?

Britain imported £10.5bn more in goods and services than it exported overseas in the first quarter of the year.

While exports have risen over the past year and totalled £146.3bn, they fell 0.5pc in the quarter, while growth in imports shot up 3.3pc, meaning that the gulf between the two figures doubled.

These numbers, gathered from 30 different sources by the Office for National Statistics, still don’t tell the full story about what businesses on the ground are doing. Much of the increase came from a rise in imported oil, cars and machinery, which can be viewed as signs of burgeoning activity.

The data also fails to capture several sources of international trade, such as luxury items that foreign tourists buy here, or the split between goods and fast-growing services, or quirks such as the Rotterdam effect, where products simply passing through a port get caught up in the cross-border trade numbers.

So each set of figures should be taken with a dose of scepticism.

Britain’s biggest single trading partner is the US, where it actually enjoys a trading surplus. Its trade relationship with the EU as a whole, meanwhile, is three times larger, and here it's in deficit to the tune
of £25.3bn on goods in the latest quarter.

Who's exporting?

For most of Britain’s businesses, trade balances are of little direct concern. Officials estimate that 9pc of small to medium-sized businesses (SMEs) export, and a further 15pc are in the supply chain of exporters. Meanwhile, more than four in 10 large businesses export.

“It’s more of an indicator of sentiment,” says Anastassia Beliakova, senior trade policy manager at the British Chambers of Commerce on the trade deficit’s impact on companies.

“Businesses look to businesses themselves and don’t view [things] at such a macro level. For them to make decisions, they will look at things that influence them day to day, such as currency fluctuations.”

Currency concerns

The falling pound is yet to make its presence truly felt in the trade balance. The ONS said in its May update that while the fall was making some British exports more attractive, many companies hedge their currency needs so have not seen a change yet.

The pound is out of the Government’s hands, so the political focus has been on practical schemes to encourage more firms to try exporting.

“We hear from member businesses that it’s the direct support that’s important to them, whether it’s trade shows or face-to-face help,” explains Ms Beliakova. “These are the kinds of things that really help them get to market and find customers.”

Exporting is Great, a scheme run by the newly-formed Department for International Trade (DIT), offers online tutorials, lists of potential markets and a wealth of other information for businesses.

Our industry has the potential to be one of the growth drivers of the United Kingdom

Mene Pangalos, Astrazeneca

So far, DIT’s efforts range from the lightweight – such as a press release for St George’s Day extolling the virtues of English strawberries, which generate just £900,000 in exports per year – to concrete support, including money to send 58 companies to Barcelona's 
Mobile World Congress trade show.

Countries such as Italy and Germany have a head start on sending government representatives to trade shows, yet businesses find them useful.

“Participants [in trade missions] say that it’s so valuable to be there on the ground and hear about the tax situation and customers – it increases their confidence in investing money in a new market,” says Emma Jones from Enterprise Nation, which organises trade trips.

“We [also] see a lot of accidental exporters, who get an order through their website and think that they might as well make the most of it. Hopefully what this shows is that there’s appetite around the world for products that are made in Britain.”

In its manifesto, Labour has promised export incentives for SMEs, which could mean export vouchers to match a company’s own investment, or take the form of indirect support such as access to trade fairs. Any support must comply with the World Trade Organisation rules on state subsidies.

The Conservatives have pledged to create a network of trade commissioners in nine overseas hubs, and continue to support UK Export Finance, which helps businesses arrange funding for overseas growth.

What about Brexit?

Replacing the free trade agreement inside the EU with a new deal is set to be a long process – and the balance of protectionism and open
trade remains uncertain.

But businesses that already export appear to be getting on with it. According to BCC figures published last week, they're becoming more confident about their prospects, despite the weak pound making imports more costly.

Some sectors have raised concerns that Brexit reforms could end up dampening international growth.

For pharmaceutical firms, the likely departure of the European Medicines Agency from its current base in London would mean that new drugs would have to adhere to two sets of rules in order to
export into the EU.

Dr Mene Pangalos, head scientist at Astrazeneca, recently told Radio 4 that life sciences support £30bn in exports a year.

“I don’t see any reason why in a post-Brexit world, we can’t make
the [UK regulator] aligned with European bodies and get our drugs and the UK well-positioned for both running clinical trials and approving new medicines,” he said. “Our industry has the potential to be
one of the growth drivers of the United Kingdom.”

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