Trade Deals Are No Big Deal

My Unlikey Blog Post Hero

Why is everyone so interested in trade deals since Brexit? I managed to get to my late fifties before I realised that the UK was in a customs union covering most of Europe. It wasn't until the EU debate that I got the further insight that this was something that had been set up consciously by the EU rather than simply being one of those things that just happen. Given that a big part of my job is literally sorting out problems getting goods across borders it is quite surprising how little I knew about it. I don't think I was unusually ill-informed.


But the thing is that at the end of the day it wasn't really that important. We have arrangements in place and most people just got on with working with them. It's pretty much like the highway code. You have a set of rules everyone follows. No doubt better ones could be contrived if we gave it enough attention. But they work well enough and we concentrate on more important things.

And when it comes to trade the most important thing is having something to trade. If we want more trade for the UK we need investment, planning, imagination and hard work. A few percent here and there on tariffs is a minor factor.

I can't help noticing that nothing that most Brexiters talk about addresses anything that increases commerce in Britain other than getting better trade deals. Even then the details are sparse in the extreme. America gets talked about a lot, along with Commonwealth countries especially Canada and Australia. There are no estimates I've seen on how much we can improve our trade with these markets. Indeed there isn't even a proposal for exactly how negotiating on our own gives any benefits over negotiating as part of the European Union. Let's not even begin on whether it was actually necessary to leave the EU to get this supposed benefit anyway.

I must make a positive mention of Liam Fox at this stage. He has said that the target should be for the UK's international trade to represent 35% of its GDP. The UK is currently on around 30%, comparable with France but a long way behind Germany which scores 47%. So getting to 35% is a stretch goal, but a realistic one. And if achieved it would lead to a higher standing of living in the UK.

For the sake of the argument let's concede the unproven point that we can get trade deals outside the EU than we can get inside it. But that doesn't alter the fact that nobody looks at trade deals when they go shopping. The only thing they might do is impose either a price challenge via a tariff or a hassle challenge via regulations. As we all know, if you really want something and you've got the money you'll get it. But if you are in two minds the cost or the time penalty might put you off. So basically the only effect of a good trade deal is to allow some trade that might otherwise be blocked to take place. It doesn't actually create any new trade.

So this whole customs union debate is very much a second order thing. It really isn't that important, not even if you rebrand it is the 'Backstop'. It isn't symmetrical though. We have a lot of trade with Europe that will be threatened by leaving the EU. It isn't a big threat to the UK as a whole but it is important to particular groups of people - notably farmers and fishermen. I don't think this will be compensated for by better deals elsewhere. The international tariff and trade environment is far from ideal but is still a lot more liberal than it used to be when I started work in the eighties. So although there are benefits from removing barriers, there are limits to what those benefits are.

I think the real reason trade deals have achieved such prominence is quite simply that they really do represent the only thing you can talk about related to Brexit where it is isn't totally obvious that the consequences of Brexit are either not particularly beneficial or are positively harmful. This is basically the Brexit trump card.

But this doesn't alter the facts.

Being in the customs union is totally compatable with being outside the EU itself.

The customs union is advantageous to the UK as it stands.

We can probably get better trade deals as part of the customs union than we can get outside it.

The effects of trade deals are of secondary importance to most businesses most of the time, and the benefits are limited.

As trump cards go it really isn't all that especially trumpy.

I definitely think Liam Fox's proposed target for increased trade is a good one and I'd be very happy to get behind it. But it will require a lot of work on things like training, investment, taxation and infrastructure. This is all the kind of stuff that is hard work and doesn't pay off straight away. We really need leadership that is prepared to roll its sleeves up and get working. Getting the best trade environment we can is only a small part of it.