It’s Brexit That’s Damaging UK Exports, Not Covid

Businesses that deal in exports, including many in the red wall, will be suffering for a long time, as report after report reaches the same conclusion.

Trade with the EU is suffering and foreign investment is heading south, as Brexit begins to take its toll. Neither trend is temporary and both damage the Government’s stated aim of ‘levelling up’ regions that until now have depended on overseas trade to create well-paid jobs.

For some time it wasn’t clear how much the pandemic was blurring the picture. Brexiters were able to hide behind broader figures that showed global trade taking a hit and, since January when the transition period came to an end, how the second and third waves of Covid-19 had distorted most countries’ trading patterns of exports.

This is no longer true. Too many independent reports examining the UK’s trade figures are coming to the same conclusion: Brexit is bad for exporters. Not just today or tomorrow, but for a very long time to come. At first sight, analysis of the most recent data suggests the impact of Brexit was fairly small. In May, the UK registered a trade surplus for the first time since June 2020, and goods exports to the EU were almost back to pre-Covid levels.

Yet closer examination by the consultancy Pantheon Macroeconomics found that ‘the damage is more apparent’ because Brexit apears to be preventing the UK from benefiting fully from the global upswing in trade. The Office for National Statistics’ (ONS) measure of the UK share as a percentage of total EU imports, is below its 2019 average level. In other words, Pantheon says, UK exporters have lost market share.

Service-sector exports down 18pc

The products most affected by the new trade barriers, such as food and chemicals, have fared especially badly, it says. Even worse, service-sector exports were still 18pc down on their pre-Covid level in May, with exports to the EU in particular dragging down the overall figures.

As the local chamber of commerce pointed out in an open letter to Boris Johnson last week, businesses in the North East are already licking their wounds. A survey in May of ‘internationally trading members’ found 75pc reported their finances being hit by Brexit-related red tape while 37.5pc said their UK-EU trade volumes had been hit.

James Ramsbotham, CEO of the British Chambers of Commerce, said Johnson needed to understand that the UK’s newfound ability to deviate from European standards may come at a heavy cost, which would impact most heavily on the North East, the region most reliant on European trade.

William Bain, head of trade policy at the BCC, has drawn up a chart of 1,400 barriers to trade with the EU that he says will make life difficult even for the most dedicated and efficient exporter.

UK no longer at heart of European factory network

Each EU country is allowed to levy its own rules on foreign companies as well as those set by Brussels. There are licences to apply for, bans on buying property and applications for expensive visas. These are all common hurdles UK workers and businesses must overcome to work and provide services in a member state.

Some investments by foreign businesses have remained steady or grown. Food manufacturing has prospered on foreign money, growing from 35 foreign-funded projects in 2015 to 64 in 2020. The UK’s love of internet shopping and deliveries means foreign-funded logistics projects have grown from 71 to 94 in the same period.

Yet while the UK had almost 13pc of all European foreign direct investment (FDI) in manufacturing in 2015, that has fallen to just over 8pc, and investments in automotive and transport fell from 83 to 40 projects in the same period to 2020. These investments once put the UK at the heart of a European factory network, but no longer.

When exports account for 30pc of the UK’s GDP and UK-based exporters struggle to compete in a world where trade is now booming, it doesn’t bode well for the nation’s economic health for many years to come.

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