Brexit: trade in goods Contents

Chapter 3: Goods—UK exports and imports

Trade in goods

65.The UK economy as a whole is dominated by services (which account for 80% of the economy),118 but goods continue to represent the largest share of UK trade.119 Although the proportion of the UK’s trade accounted for by goods has fallen significantly from a peak of 75% in 1986, goods still represented 56% of all trade in 2015.120

66.The UK imports more goods than it exports.121 The UK’s trade in services is in surplus, but this does not make up for the goods deficit, resulting in an overall trade deficit.122 Increasing goods exports in order to address this trade deficit has been advocated by successive Governments. For example, in September 2016 the Rt Hon Liam Fox MP, Secretary of State for International Trade, said the UK “cannot leave our current account deficit, which currently stands at a record level of 5.4% of GDP, to be dealt with at some point in the future”.123

67.It is a mistake to regard imports as bad for the economy, and exports as good: imports also generate economic activity. We also note that—as discussed below and in Chapter 4 (in relation to the six sectors)—imports are often essential to the production of goods which are then exported. The UK Trade Policy Observatory, University of Sussex, told our Internal Market Sub-Committee that while exports generated foreign exchange, the purpose of this was, in turn, “to purchase goods and services for us to consume”. It added that “the output from sectors in deficit requires labour and so generates jobs just as much as that from sectors in surplus”.124

68.The UK Trade Policy Observatory also told the Internal Market Sub-Committee that while the import of goods which might have been produced domestically could result in job losses, “very often domestic output could not readily (or sometimes even at all) substitute for imported goods, and so a simple ‘jobs lost’ calculation will be very misleading”.125

Exports

69.Table 1 details the UK’s exports to the EU in goods and services, and their share of the UK’s total exports in 2015.

Table 1: UK exports to the EU and percentages of total UK exports 2015 (£ million)

Exports of goods to the EU

133,524

Percentage of total UK goods exports

46.9%

Exports of services to the EU

88,909

Percentage of total UK services exports

39.4%

Total exports of goods and services to the EU

222,433

Percentage of total UK exports

43.6%

Source: ONS, ‘Statistical bulletin—UK trade: May 2016, Table 2’: https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/bulletins/uktrade/may2016 [accessed 9 February 2017]

70.The EU countries combined were the UK’s single largest export market for goods in 2015, accounting for 47% (£134 billion). UK goods exports to non-EU countries were valued at £151 billion in 2015 (53%).126 The major EU export destinations for UK goods in 2015 were Germany, France, The Netherlands and Ireland.127 The largest export destinations for UK goods (after the EU countries combined) in 2015 were the US, China, and Switzerland.128 We note that the UK’s trade with Switzerland is covered by the conditions of the EU-Switzerland FTA and associated bilateral agreements, and these preferential terms would not apply to the UK after Brexit.129 The destinations and figures for the UK’s goods exports are given in Table 2.

Table 2: Destination of UK goods exports 2015

£ million

Percentage of total UK exports (rounded)

EU total

133,524

47

Germany

30,480

11

France

17,920

6

The Netherlands

16,870

6

Ireland

16,764

6

United States

47,229

17

China

12,721

4

Switzerland

8,143

3

Rest of the world

83,238

29

Total

284,855

100

Source: ONS, The Pink Book—2016, Chapter 9—9.4 Trade in goods (29 July 2016): https://www.ons.gov.uk/file?uri=/economy/nationalaccounts/balanceofpayments/datasets/9geographicalbreakdownofthecurrentaccountthepinkbook2016/thepinkbook/pinkbook2016chapter9.xls [accessed 7 March 2017]

71.The percentage of UK goods exports accounted for by the EU in 2015 was slightly lower than in the period 2012–2014, when on average just over 50% of the UK’s goods were exported to EU countries.130 The Office for National Statistics noted that this was a trend for both goods and services: “The UK has increasingly been trading with emerging and advanced economies from outside the EU, with the proportion of trade with EU countries falling since 1999”.131 Figure 3 shows this trend for goods exports.

Figure 3: Percentage of goods exports accounted for by the EU 2005–15

Line graph

Source: ONS, ‘Statistical bulletin—UK Balance of Payments, The Pink Book 2016’: https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/bulletins/unitedkingdombalanceofpaymentsthepinkbook/2016 [accessed 9 January 2017]

72.Although the UK’s overall share of global goods exports is lower than that of key competitors, according to a 2012 report by the then Department for Business, Innovation and Skills, the UK’s “export performance is relatively strong in many innovative, high growth goods sectors, such as pharmaceuticals and high tech machinery”.132

73.The UK tends to export more components, fuels, food and beverages, and basic materials to the EU than to non-EU countries, but exports more finished goods and services to non-EU countries than to the EU.133 The Office for National Statistics explained that this was in part because the UK is “an important part of the EU supply chain”, and so “a relatively high proportion of our exports of goods are components manufactured in the UK for onward assembly elsewhere in the EU”.134

Imports

74.Table 3 details the UK’s imports from the EU in goods and services, and their share of the UK’s total imports in 2015.

Table 3: UK imports from the EU and percentages of total UK imports 2015 (£ million)

Imports of goods from the EU

222,992

Percentage of total UK goods imports

54.2%

Imports of services from the EU

67,977

Percentage of total UK services imports

49.4%

Total imports of goods and services from the EU

290,969

Percentage of total UK imports

53%

Source: UKEA, ‘Office for National Statistics: Statistical bulletin—UK trade: May 2016, Table 2’: https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/bulletins/uktrade/may2016 [accessed 9 February 2017]

75.The EU accounted for 54% (£223 billion) of the UK’s imports of goods in 2015.135 The principal EU countries supplying the UK’s goods imports in 2015 were Germany, The Netherlands, France and Belgium.136 The largest non-EU sources of the UK’s imports in 2015 were China, the US, Norway and Switzerland.137 We note that the UK’s trade with Norway is covered by the conditions of the European Economic Area, and that with Switzerland is covered by the conditions of the EU-Switzerland FTA and associated bilateral agreements, and these preferential terms would not apply to the UK after Brexit.138 The sources of and figures for the UK’s goods imports are given in Table 4.

Table 4: Source countries of UK goods imports 2015

£ million

Percentage of total UK imports (rounded)

EU total

222,992

54

Germany

61,789

15

The Netherlands

31,690

8

France

24,412

6

Belgium

20,936

5

China

37,968

9

United States

34,715

8

Norway

13,263

3

Switzerland

8,470

2

Rest of the world

93,778

23

Total

411,186

99

Percentage does not total 100 due to rounding

Source: ONS, The Pink Book—2016, Chapter 9—9.4 Trade in goods (29 July 2016): https://www.ons.gov.uk/file?uri=/economy/nationalaccounts/balanceofpayments/datasets/9geographicalbreakdownofthecurrentaccountthepinkbook2016/thepinkbook/pinkbook2016chapter9.xls [accessed 10 February 2017]

76.We note that many of the UK’s strongest manufacturing industries in terms of trade—including machinery, pharmaceuticals, electrical goods and vehicles—are “quite import-intensive, but nevertheless … add significant value to the UK economy in terms of output and employment”.139 This is discussed further in relation to the sectors considered in Chapters 4 and 5.

Conclusions and recommendations

77.The EU is, by a significant margin, the UK’s biggest trading partner in goods. Both imports from and exports to the EU are essential to the UK’s manufacturing industry and primary commodities sectors. Safeguarding UK-EU trade in goods will be a critical factor in ensuring the UK’s long-term prosperity post-Brexit.

78.Norway and Switzerland are two of the UK’s largest trading partners outside the EU. They are highly integrated into the EU’s Single Market, and so Brexit will change the UK’s trading relationship with them. The Government should seek a comprehensive trade agreement with these countries after Brexit, to avoid a worsening of trade conditions.


118 Full Fact, ‘Everything you might want to know about the UK’s trade with the EU’: https://fullfact.org/europe/uk-eu-trade/ [accessed 10 February 2017]

119 ONS, ‘Statistical bulletin—UK Balance of Payments, The Pink Book: 2016’: https://www.ons
.gov
.uk/economy/nationalaccounts/balanceofpayments/bulletins/unitedkingdombalanceofpaymentsthepinkbook/2016#trade [accessed 10 February 2017]; The ONS noted that the rising share of services—44% of total trade in 2015—is “indicative of the UK’s relative strength in services activities”.

120 ONS ‘Statistical bulletin—UK Balance of Payments, The Pink Book: 2016’: https://www.ons
.gov.uk/economy/nationalaccounts/balanceofpayments/bulletins/unitedkingdombalanceofpaymentsthepinkbook/2016#trade
[accessed 10 February 2017]

121 ONS, ‘UK Perspectives 2016: Trade with the EU and beyond’: http://visual.ons.gov.uk/uk-perspectives-2016-trade-with-the-eu-and-beyond/ [accessed 10 February 2017]

122 Ibid.

123 Liam Fox MP, Speech on free trade, 29 September 2016: https://www.gov.uk/government/speeches/liam-foxs-free-trade-speech [accessed 3 February 2017]; The Rt Hon George Osborne MP, former Chancellor of the Exchequer, in 2011 announced a “march of the makers” to rebalance the UK economy towards manufacturing exports. The Economist, ‘The other deficit’ (15 October 2015): http://www.economist.com/news/britain/21674792-how-worrying-britains-large-current-account-deficit-other-deficit [accessed 23 February 2017]

124 Written evidence submitted to the EU Internal Market Sub-Committee, 30 November 2016 (Session 2016–17) TAS0085 (UK Trade Policy Observatory, University of Sussex)

125 Written evidence submitted to the EU Internal Market Sub-Committee, 30 November 2016 (Session 2016–17) TAS0085 (UK Trade Policy Observatory, University of Sussex)

126 ONS, ‘Statistical bulletinUK Balance of Payments, The Pink Book 2016’: https://www.ons
.gov.uk/economy/nationalaccounts/balanceofpayments/bulletins/unitedkingdombalanceofpaymentsthepinkbook
/2016#trade [accessed 10 February 2017] and ONS, ‘UK Perspectives 2016: Trade with the EU and beyond’: http://visual.ons.gov.uk/uk-perspectives-2016-trade-with-the-eu-and-beyond/ [accessed 10 February 2017]

127 ONS, The Pink Book—2016, Chapter 9—9.4 Trade in goods (29 July 2016): https://www.ons
.gov.uk/file?uri=/economy/nationalaccounts/balanceofpayments/
datasets/9geographicalbreakdownofthecurrentaccountthepinkbook2016/thepinkbook/pinkbook2016chapter9.xls
[accessed 12 January 2017] We note that statistics on trade with the Netherlands may be affected by the ‘Rotterdam effect’: the situation where goods which are initially exported to one country (with a large international port) are then re-exported elsewhere.

128 ONS, The Pink Book—2016, Chapter 9—9.4 Trade in goods (29 July 2016): https://www.ons
.gov.uk/file?uri=/economy/nationalaccounts/balanceofpayments/
datasets/9geographicalbreakdownofthecurrentaccountthepinkbook2016/thepinkbook/pinkbook2016chapter9.xls
[accessed 10 February 2017]; These are the largest single-country destinations. The Residual Gulf and Arabian Countries combined (Bahrain, Iraq, Kuwait, Oman, Qatar, United Arab Emirates and Yemen) together account for £10,058 million or 4% of UK exports.

129 We considered Switzerland’s trade arrangements with the EU in the report Brexit the options for trade. European Union Committee, Brexit: the options for trade (5th Report, Session 2016–17, HL Paper 72)

130 ONS, ‘UK Perspectives 2016: Trade with the EU and beyond’: http://visual.ons.gov.uk/uk-perspectives-2016-trade-with-the-eu-and-beyond/ [accessed 6 March 2017]

131 Ibid.

132 Department for Business Innovation and Skills, BIS economics paper no. 17 (February 2012), p 6: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/32475/12-579-uk-trade-performance-markets-and-sectors.pdf [accessed 7 March 2017]

133 ONS, ‘UK Perspectives 2016: Trade with the EU and beyond’: http://visual.ons.gov.uk/uk-perspectives-2016-trade-with-the-eu-and-beyond/ [accessed 6 March 2017]

134 Ibid.

136 Ibid.

137 Ibid.

138 We considered Norway and Switzerland’s trade arrangements with the EU in the report Brexit the options for trade. European Union Committee, Brexit: the options for trade (5th report, Session 2016–17, HL Paper 72)

139 Department for Business Innovation and Skills, BIS economics paper no. 17 (February 2012), p 7: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/32475/12-579-uk-trade-performance-markets-and-sectors.pdf [accessed 10 February 2017]




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