In light of the lively discussion over the UK’s future trade agenda, I take a brief look at the UK’s existing economic ties with Europe and beyond. Given the intricacies of these relations, more posts on this topic will follow.
1. The Development of the UK Trade Balance with Europe
The UK trade deficit with Europe has grown significantly over the last years, but the trade balance with other parts of the world has improved over the same time period. In fact, there is a relatively clear trend: exports to EU member states have declined by on average 0.7 annually since 2008 and exports to 17 of the 27 other EU member states are lower today than they were in 2008.
According to data collected by HM Revenue and Customs, the UK’s total exports to Europe have actually decreased over the years from £141,068 million in 2008 to £133,365 million and imports have at the same time increased from £178,858 to £218,667 million. This leaves the UK with an average annual growth rate of -0.7 percent for exports to the EU and 2.54 percent for imports between 2008 and 2015. Consequently, the UK’s negative trade balance increased from £37,790 to £85,302 million between 2008 and 2015; this represents an annual growth rate of 10.71 percent. The figure below shows the change in the UK trade balance since 2008.
Source: own compilation based on HM Revenue and Customs data
2. UK Trade with non-EU Partners
While UK exports to the EU declined, commercial ties with other regions intensified and especially exports to Asia grew significantly. The average annual growth for exports to China between 2008 and 2015 was 17.8 percent, to South Korea 8.8 percent, to Hong Kong 6.5 percent, and to Singapore 3.9 percent. Saudi Arabia and the UAE have become other important destinations for UK commerce with annual average growth of 11.5 and 4.4 percent respectively.
Exports to non-EU trade partners rose from £115,792 million in 2008 to £171,544 million in 2015 – an annual growth rate of about five percent. While the EU thus remains the largest export market for the UK, a majority of British exports are now directed to other trade partners. Not least because of the European financial and sovereign debt crisis, UK exports to the rest of the world were larger than exports to the EU for the first time in 2011 and the disparity grew to nearly £40,000 million in 2015.
However, trade with Commonwealth members such as India or Australia has stagnated or declined over the same time period: exports to India decreased by on average 0.8 percent annually while exports to Australia fell by around 1.5 percent annually. The figure below sums up UK ties with non-EU trade partners. Given the high volume of transatlantic trade, with an average annual increase of 3.3 percent the US has also been a major contributor to UK export growth and, interestingly, exports to Switzerland grew on average 14.8 percent annually.
Source: own calculation based on HM Revenue and Customs data
3. The UK Trade Balance in Intra-EU Comparison
Can we observe a similar shift in exports from Europe towards other trade partners for other EU member states? And how does the UK trade balance compare to the exports and imports of other EU member states?
Based on Eurostat data on trade in goods (excluding services, which remain an importing correction factor for the UK!), the UK’s balance stands out: the UK imported around €150,000 million more in goods in 2015 than it exported in the same year. But although the UK’s negative balance in goods increased over the last decade, this happened much slower relative to some other European member states, notably France. While the French negative balance increased from a negative of around €15,000 million in 2004 to around €60,000 million in 2015, the UK’s balance – which in 2004 already stood at a negative of €103,223 million – only rose by about the same amount.
The figure below provides an overview of Member States’ trade balance in goods (!) for the year 2015:
Source: own calculation based on Eurostat data
The UK’s negative trade balance in goods manifests itself in an asymmetric trade relationship with most EU member states. The figure below sums up the relationship between UK imports and exports in goods with EU member states in 2015. Note that logarithmic scales on both axes are necessary to represent the whole of Europe in one graph. Every point left of the 45-degree line suggests a trade relationship in which the UK imports more goods than it exports to a specific member state. The figure shows that the UK’s 2015 trade relationship in goods is positive for only a few smaller EU member states, while most other members export considerably more to the UK than they import from the UK.
Source: own calculation based on Eurostat data