Catherine McBride

A few weeks ago I posted about Catherine McBride, an economist (or so she claims) at the IEA. She wrote a paper in October challenging the OBR’s assumption that Brexit has negatively impacted trade and as a consequence, our GDP. And not just so far. The OBR also works on the basis that exiting the single market will continue to have a bad effect long into the future. She argued that Brexit has not affected trade with the EU or not very much. You need quite a bit of chutzpah to claim the OBR is wrong and you - a contributor to a Brexit-supporting think tank - are right.

As we know there is no shortage of brass neck among Brexiteers when it comes to making these reality-defying claims.  How they get invited to give 'evidence' to a select committee is a mystery.

Anyway, someone posted on Twitter the very same lady giving evidence to the Business and Trade Committee in July this year where she suggests that external trade isn't important:

💥Absolute car-crash evidence by the Centre for Brexit Policy in the Commons.

Apparently TRADE. DOESN'T. MATTER. Because only a declining (I wonder why) 10% of UK firms export.

How did we go from promises of "EMPIRE 2.0" and global trade domination, to "trade, schmade"? ~AA pic.twitter.com/AFN0sFCfM1

— Best for Britain (@BestForBritain) July 18, 2023

The full transcript of the evidence session is HERE.

These are her words:

"We have a very big domestic market. A lot of people like to talk about trade intensity. That is not really a big problem for the UK. We are basically a domestic market. Our trade is quite a small part of what we do. 

"This is very different from, say, Germany, where trade is a higher proportion of GDP. The trade intensity of countries like America or in Japan is only 25%. If people are worried about trade intensity, they are missing the point. The UK is basically a domestic market. We have some very big multinationals that trade out of the UK."

When challenged that what she is inferring is Britain doesn't need to export, she says:

"One of the reasons people like to sell things to the UK is that we have a very wealthy consumer base here. We have a very affluent population if you compare it to world populations."

But three months later she takes the trouble to write a 36-page paper for the IEA defending the impact of Brexit because 'trade hasn't really been affected'. But if trade and trade intensity (the % of external trade compared to GDP) doesn't matter, why worry about it at all?

I think she's wrong and badly wrong. Trade does matter. We are addicted to imports of every kind from clothing and footwear to food and wine and from electronic goods to packaging systems.  Nothing wrong with that of course, except you need to pay for all that stuff.

Germany pays by exporting a hell of a lot of goods, it runs a huge trade surplus, as do other EU member states.  We run a deficit in goods, only partly offset by a surplus in services including tourism.

But the national books must balance, so the UK needs to attract money in the way of foreign investment which we usually do (the kindness of strangers as Mark Carney once put it). If we can't, the pound sinks to a lower level to (a) make imports more expensive and (b) increase exports and/or attract more FDI by making our assets look cheaper to foreign buyers.

We've been doing this for decades. At the beginning of the 20th century, each pound was worth $5. This morning it's trading at $1.2750 - about a quarter of what it was and we have barely any assets left. A lot of our infrastructure in water, energy and transport for example is foreign-owned. Many of our leading businesses are also foreign-owned. 

Profits are returned to investors overseas which (I assume) are included in our imports, exacerbating the problem in the long term.

Far from being unimportant, I think trade is central to our economic and societal ills.

In her evidence, she says big companies can handle the extra paperwork created by Brexit but concedes it's added costs for smaller SMEs. McBride said:

"The cost of trading has probably gone up for an individual company. Depending on how much they trade, it might be an incremental cost. For jet engines, Rolls-Royce might need to have an extra person on a desk in its trade department."

Someone on Twitter, who seems to know about the subject says in fact R-R had to employ 82 extra staff.

She argues that taxpayers paid those market access costs before in the form of payments to the EU and that's probably true, but the funds also paid for a lot of other things too, like trade negotiators and regulators.  The issue is whether it's better to do it collectively or not. And I think it's far better to have a single regulated market rather than 27 or 28 with individual businesses - often in the same industry or sector - all duplicating a lot of unnecessary red tape.

David Henig, a well-known trade expert, also gave evidence and I think we picked apart Mcbride's bluster perfectly with this contribution. The last paragraph is the best:

"In the past, if you wanted to supply a service [to the EU], you would just get on a plane and supply it. Now you may have to apply for a work visa, for example. It may not be granted. Your professional qualification may not be recognised to deliver the service. There are all manner of things on the services side.

"On the goods side, you cannot just send something to another country. There are rather large amounts of paperwork to go with that. You need to use the services of freight forwarders and customs agents; you need to make sure your goods meet the requisite EU regulations and have the requisite CE marking, if they did not before.

"There are many more effects. A typical trade agreement is a collection of numerous fixes to little problems like that, and the single market even more so. The presumption was that you could trade unless specifically disallowed. A trade agreement takes any barrier you can think of and tries to do something about some of them, but there are still huge numbers even since we have had the trade and co-operation agreement.

"As for the net effect, I will finish with one figure. Typically, small and medium enterprises account for about 30% of total trade between countries. Within the single market it is 40% because it is just easier.

Inevitably, therefore, if you follow that logic, fewer UK small companies are likely to export. That is exactly what we see."

And to become a big multinational able to absorb the extra costs, you need to go through the SME stage and if you can't or can't afford to export, you will never grow or will find it far more difficult.