The impact of Brexit is really beginning to come through clearly in Britain’s overseas trade. If you add friction to exports to your largest market and delay (or even abandon) applying friction on imports, what would you expect to happen? The ONS released trade figures for June last week and they show the trade deficit, the difference between what we export and import, is at record levels. Anyone over the age of sixty or so will know this would once have been enough to topple governments.
Whatever you can say about statistical projections of trade and GDP into the future, you cannot argue with actual past performance which is now a matter of record and by the respected Office for National Statistics.
This is what they say:
“The total trade in goods and services deficit, excluding precious metals, widened by £2.0 billion to £27.9 billion in Quarter 2 (Apr to June) 2022 compared with the previous quarter; this is the largest quarterly deficit in current prices since records began in January 1997.”
In fairness, they do point out that this doesn't take account of inflation and they say there is still some volatility due to coronavirus, supply chain disruption and global recession. Also Eurostat, the EU statistics body have changed the way they compile data so there is some discrepancy between our numbers and their's.
The reason for excluding precious metals by the way is because we hold other countries reserves of gold and if these are transferred in or out, the trade numbers get distorted.
Jonty Bloom has a piece in The New European about the most recent trade figures which is well worth a read. World trade is booming but the UK’s trade and trade openness (the difference between imports and exports) are both falling or not increasing at the same rate as our competitors. He uses a chart by Oleksandr Shepotylo to demonstrate:
Harold Wilson blamed a set of poor trade figures for Labour losing the election in 1970. He had devalued the pound three years earlier, which was fixed at the time at $2.8 =£1. He devalued it to £2.4=£1 (15%) in a bid to boost British exports, which obviously didn't work. There is a striking similarity here to Brexit's devaluation of sterling which fell by about 15% after the 2016 referendum and has struggled ever since. Last week we were down to £1.2=£1 - half of what it was in 1970 and our trade is still falling.
Wilson had inherited a balance of payments deficit of £800 million when he came to power in 1964 which really worried ministers of both parties and the mandarins at Treasury. Inflation since then has been around 2,152 per cent which would mean that deficit would be worth about £18 billion at today's prices, a figure the current chancellor can only dream of. In fact it's six times worse!!!
The trade gap has become less important nowadays because economists realised it was OK to run a deficit provided there were capital inflows to balance the books. This is what Mark Carney the former Bank of England governor meant when he said Britain was relying on the 'kindness of strangers.'
So, we need to attract £100 billion of foreign 'investment' every year just to finance our lifestyle. This comes in things like Middle Eastern despots buying football clubs like Newcastle or real estate in Manchester. We have already sold a lot of our basic infrastructure like water and power companies and now we're down to care homes and apartments. What happens when the family silver is all gone?
One of the most important features of this current account balance is that it is a sign of the UK’s inherent productivity or relative competitiveness. If we are importing much more than exporting and have a deficit, this is a sign that the UK is becoming less and less competitive compared to other countries.
This again is what you would expect after separating yourself from your biggest suppliers, the ones who provide you with your raw materials, intermediate products, machines, trucks, spare parts, upgrades, expertise and support. What could possibly go wrong?
Jonty Bloom also talks about the Japanese trade deal that Truss negotiated, which is more or less the same as the EU-Japan deal with some 'improvements'which she trumpeted at the time. But UK trade with Japan since has actually declined. He says, "The reason is not hard to find – many Japanese companies used the UK as their bridge into the EU. Now that bridge has been burned, they see no reason to trade via the UK. As a result, many Japanese companies have moved their European headquarters and their money out of the UK, and it shows."
We are now rushing headlong into another trade deal with India and we have a group of eleven UK trade bodies pleading with the government not to go for a bad trade deal just to meet Johnson's self-imposed deadline to get it “done by Diwali”. The group have written to trade secretary Anne-Marie Trevelyan – urging her not to compromise on the “substance” to meet the timetable.
You can be sure she will compromise, and deliver another blow to Britain's manufacturers and producers who are already finding it difficult to compete with much wealthier countries in the EU where wage and salary levels are at least in the same ball park.
The government is making the same mistake that Wilson, Heath, Thatcher, and Johnson made. They assume Britain's industries can be made to compete simply by cutting prices, opening up new markets and hoping they will sink rather then swim. It was a recipe for disaster before we joined the EEC and it will be a disaster after we left the EU.
When will we ever learn?
