Henry writes*
Yes, Brexit poses some serious threats to the UK’s economy. Yet while the media only likes to portray the future of the UK’s economy in constant doom and gloom, there exists many advantages and positive signs from the UK’s perspective. Brexit’s economic challenges can be overcome, and although it may take a while for the UK’s economy to adjust, if there is one country in Europe capable enough of growing and sustaining its economy independently, it is the United Kingdom. Not a believer? – The UK accounts for just under a fifth of total EU GDP and is the second largest EU economy behind Germany (Eurostat). On top of this, we remain one of only two countries within the EU to have kept its own currency, which should be pointed out is stronger than the Euro. One of the best economic decisions we made in the past was to choose to exempt ourselves from adopting the Euro, so before you say we are making another mistake, let’s wait and see how this all unfolds before jumping to any conclusions.
The UK’s shift away from the EU market can all start with the vital trade deals it makes with other countries, allowing them to strike further exporting partnerships into markets outside of Europe. Having said that, the European market is currently the UK’s largest trade market (Office for National Statistics GB). Brexit will bring new barriers to trade and break supply chains and deals with EU businesses. This will undoubtedly affect the UK’s flow of trade and, consequently, revenue into the country. However, what we have not been told is that the percentage of UK exports to the EU has been steadily declining over the past few years (Lynn 2019). In fact trade statistics have shown that this percentage has continued to decline even into 2018 as results from the last year were recorded (ibid.). This might be implying that the importance of the EU as an export market is declining. The rest of the world’s economies, for the most part, are growing at much faster rates while Europe’s economies are stagnating (ibid.). Consequently, trade is service based and follows where the most of the demand is, and with the UK’s shift away from European markets, Brexit may only speed up this trend away from European markets. To highlight this trend, last year UK export sales to countries outside of the EU went up by a notable 7.3% (ibid.). This comes in addition to the near 10% decline in exports to EU over the past fifteen years (ibid.).
In light of these statistics, it is important to consider that trade relationships and markets are built over years rather than the short term. No shift away from the EU market will happen so quickly. Therefore in the meantime it is still vital that the UK secures some sort of trade deal with the EU, despite this greater trend of exporting to markets outside of the EU. What I am trying to point out is that some positive signs of trade do exist going into our departure from the European Union. For example, UK export sales to China increased by 25% over the last year (ibid.). Going into Brexit, with a deal or not, the trade statistics do make one thing clear. The UK’s economy has already been separating itself from European markets for some time now and this trend isn’t going to stop. With Brexit you could almost say that the political side of things are only just catching up with the economic reality.
Bottom line: Brexit began even before the vote to depart the EU. While the political situation is currently a mess, I would argue that with time, a UK economy free of the EU’s regulations can thrive despite the uncertainty surrounding the UK’s future. I’ll take it that the UK’s economy may suffer for the first few periods after Brexit. But come back to me in ten years time, see where our economy is standing in comparison to the EU, for good or for worse, and then let’s talk about Brexit.
* Please help my Growth & Development Economics students by commenting on unclear analysis, alternative perspectives, better data sources, etc. (Or you can just say something nice 🙂
Hey Henry,
Interesting blogpost and although I love to hear a different opinion than what is dominating the media lately and I agree that the effects of Brexit on the long term are uncertain, I still believe that in the end, if we have to be one-handed economists, Brexit will do more harm than good to the British economy. Although it might be true that exports to the EU are declining, this does not mean that the EU is not an important trading partner any more. Also, was EU membership really harmful for the British economy? As you said, the UK kept its own currency, but the country does benefit from the EU internal market. The EU only wants to grant the UK access to the European internal market, if the UK agrees with the free mobility of people across the EU as well, which they most likely will not agree with, because this was one of the biggest concerns for the Brits (well, 52% of the people that actually showed up) that voted in favour of a Brexit. Without access to this internal market, the UK can of course still make bilateral trade deals, but no access to an internal market with some of the biggest economies of the world (that might not be on the rise, but will still be one of the wealthiest nations in ten years time) is a huge loss to the British economy. Although we have to be careful with drawing conclusions, I think it is safe to say that both in the short term and the long term, the Brexit will do more harm than good to the British economy.
Hey Henry,
Very interesting block post to read! However, I do think many of the things you mention are among the arguments brought forward by Brexiteers for a while now, and which look increasingly shaky. Brexit Secretary David Davis said two years ago already: “we can negotiate a free trade area massively larger than the EU,” bringing up the US and China as the markets of the future. However, this dream was already punctured in part before the Brexit with Obama saying that Britain would be at the back of any list for trade deals. With the coming of Trump people became more hopeful, however, his negotiating strategies have become more clear in his escalating trade war with China (And now problems with India). The proposed trade objectives to the UK made by Washington recently have been nowhere near what the UK wanted, with a trade deal with the US boosting GDP by 0.3% according to government figures. (https://www.theguardian.com/commentisfree/2019/mar/01/brexit-trump-trade-hanoi). This does not even come close to the expected hit of 4%-8% caused by Brexit, with little evidence that other trade deals negotiated by the UK will be more favorable than those done by the EU (Which has more bargaining power). Therefore, I think it right to say that the economic argument for Brexit is a false one, with little evidence rooting for it.
Hi Henry!
Interesting post on the whole fiasco we, both British and Dutch, currently find ourselves entangled in. Although you offer some statistics which supposedly show the declining relevance of the EU market to Britain, I would like to draw your attention to some of the absolute, rather than relative, trade numbers.
As you mention, exports to China have risen a baffling 25% over the past year; the average increase over the past 8 years was over 11% per year. Over this 8 year period, exports to the Netherlands saw a 1,1% average increase per year (HM Revenue & Customs, 2019). Following your argument, then, “Britain is separating itself from European markets.” However, the Chinese increase of 25% over 2018 actually amounts to a real increase of 4 billion pounds in export volume; absolute increase towards the Netherlands over the same period was 3,5 billion pounds (Ibid.).
Yes, non-EU exports are increasing their share of total British export volume. Total Non-EU export volume increased by 1,07% over 2018, at an absolute growth of 13 billion (Ibid.). However, EU exports also continue to grow; 1,04% over 2018, which amounts to 6 billion pounds in total (Ibid.). The “near 10% decline in exports to EU over the past fifteen years” statistic you claim is misleading, as it is, in fact, a decline in relative exports rather than absolute exports; total export volume to the EU has increased by 20% over the past 8 years (Ibid.)
I would then posit that the statistics actually do not support the claim that Britain is separating itself from EU markets. It is increasing its engagement with other markets, but EU markets remain incredibly important, and the potential for any other market to replace the EU within your posited timeframe of 10 years is not reflected in the numbers. In order for China or the US to surpass the EU you would need continuous exponential growth. The Chinese 25% stat over an 8 year average of 10% might imply that, but this is actually probably an artefact considering the fact that total export volume growth to China over the past three years is actually only 15% (Ibid.). The 25% stat is down to a just as dramatic decrease over 2016, and the subsequent recovery.
An expression on both sides of the pond is to “not throw the baby out with the bathwater.” To argue that the (minor) relative decline of EU market importance to the UK warrants a dramatic shift in focus towards the Big Bad Outside World is exactly that, in my opinion. I am curious to see your reply.