Analyzing different trade policies and its economic implications.
Trade Policies Present in the United Kingdom since 2000
The United Kingdom until 2000
The United Kingdom is considered a pioneer in the world of international trade, for they
began trading overseas with countries like India from the 16th century. This was done as a
by - product of extensive exploration work which was chartered by the Royal decrees
brought upon by nations like Spain for Christopher Columbus and Portugal for Vasco Da
Gama. The UK Sponsored Sir James Cook, who discovered the trade routes to Australia. In
this manner the UK which at that time was a Monarchy, began building trade outposts in
places beyond Europe
At that time, the UK mainly traded in spices, precious stones and cloth with these nations. Its
Method of business was that it will purchase the raw material from places around the world,
Process it to suit the market demand and sell it in Europe. This model of Business is known
as “Entrepot”. With the advent of the Industrial Revolution, the goods in which England
traded in changed for now it also demanded minerals and steel as raw material for the
industries present in England. Fabrics in Cotton and indigo were in great demand in the
factories present in the Cities of Manchester and Lanchester. This Translated into the UK
Building a network of Colonies around the world. They became important customers to the
UK, as the UK controlled the supply of goods in those regions, it meant that it only supplied
goods produced by the UK, hence resulting in a two way profit for the British as they will
earn revenue through both cheap raw material and the sales of the products made using them.
This helped the UK maintain the 3rd position in terms of GDP ranking throughout World
War 2. After the war, UK began losing its colonies which had a cascading effect on it’s
economy, which already experiencing slowdown and recession like waves as World War 2
caused the significant destruction to the assets of UK and it’s economy as a significant
source of financing the war came through the economy, secondly, as war came to an end the
people serving in the war, from the soldiers to the support staff to armed forces were left
without jobs resulting in widespread unemployment across the UK. All these factors served
as an ultimatum to the government to improve the economy. Until 1974 which was the
period prior to the appointment of Margaret Thatcher as the Prime Minister the annual GDP
growth rate was between 3 - 5 % which was lower than the US’ at 8%. Thatcher embraced
monetarism and free markets which were in practice in the USA. Here she began a massive
privatization drive for she believed by selling these entities the Government expenditure
shall reduce hence helping the economy. But she also sold profit making companies like the
British Airways which was seen as an extreme measure.
Here’s a summary of UK exports by product category over the last two decades, with
approximate values (in billions of GBP) at different points in time:
1. Machinery & Transport Equipment: ~£590 billion
2. Pharmaceuticals & Chemicals: ~£230 billion
3. Mineral Fuels: ~£170 billion
4. Food, Beverages & Tobacco: ~£90 billion
5. Manufactured Goods: ~£190 billion
6. Metals: ~£52 billion
7. Computers & Electronic Products: ~£107 billion
Key Trends:
• Machinery and Transport Equipment remained the largest export category,
particularly driven by the automotive and aerospace industries.
• Pharmaceuticals and Chemicals showed significant growth, reflecting the UK’s
strength in high-tech and life sciences sectors.
• Services exports (not detailed here by value) have also grown rapidly, especially
in financial and professional services, contributing more to overall exports than any single
product category.
• Mineral Fuels experienced a decline due to reduced North Sea oil and gas
production and global shifts towards renewable energy.
These values are approximate and based on data trends over the years. The export landscape
is shaped by numerous factors, including exchange rates, global demand, and trade policies.
According to the Office for National Statistics, UK imports in October 2022 amounted to
£51.8 billion, with £25.9 billion each coming from EU and non-EU countries.
The figures exclude the import of precious metals and non-monetary gold. The top 10
commodities imported by the UK in the three months leading up to October 2022 are:
1. Mineral Fuels – £8.7 Billion
2. Mechanical Appliances – £6.4 Billion
3. Electronic Equipment – £5.3 Billion
4. Precious Metals – £4.2 Billion
5. Motor Vehicles – £4.1 Billion
6. Pharmaceutical Products – £2.0 Billion
7. Other Products – £1.6 Billion
8. Plastics and Plastic Products – £1.5 Billion
9. Measuring Devices and Gauges – £1.3 Billion
10. Knitwear – £1.3 Billion
What trade deals has the UK signed since Brexit?
Since Brexit, the UK has signed trade deals and agreements in principle with about 70
countries and one with the EU.
However, the majority of these are simply "rollovers" - meaning they copied the terms of
deals the UK previously had when it was an EU member, rather than creating new trading
arrangements.
And some of them are with countries with which the UK does very little trade.
A deal with Japan was signed in October 2020. It was the first that differed from the existing
EU trade deal.
The Australia deal was the first trade agreement negotiated from scratch by the UK since it
left the EU. UK farmers warned they could be undercut by cheap imports, which could cost
jobs. However, the UK government insists the deal contains protections for the sector.
An agreement with Norway, Iceland and Liechtenstein was announced in June 2021 and
builds on the previous agreement the UK had with these countries.
The UK signed a new deal with New Zealand on 28 February 2022.
New Zealand is a small trading partner, accounting for less than 0.2% of total UK trade.
While the deal is unlikely to boost the UK economy by much, it could lead to more New
Zealand lamb being sold in the UK.
The UK has also agreed to join an existing trade agreement between 11 Pacific Rim nations.
The government expects to become a member of the Comprehensive and Progressive
Agreement for Trans-Pacific Partnership (CPTPP) in the second half of 2024.
Talks with India began in early 2022, although no deal has been reached.
And there has not been a deal agreed with the US, although it had been set as a priority in the
Conservative 2019 manifesto.
Rishi Sunak said in June 2023 that a full free trade agreement had not in fact been a priority
for either country "for a while now", although a more limited economic agreement called the
Atlantic Declaration was signed.
What is the UK-EU trade deal?
After Brexit happened on 31 January 2020, the UK and EU needed to decide the rules for
their future trading relationship.
This was important because the EU was the UK's largest and closest trading partner.
After months of negotiation - which went down to the wire - a UK-EU trade deal came into
force on 1 January 2021.
The deal prevented any tariffs and quotas being introduced, which would have made it more
expensive to trade goods between the two partners.
But not everything is the same as it was before Brexit.
As the UK no longer has to follow EU rules on product standards, new checks have been
introduced.
The deal also does not completely eliminate the possibility of tariffs in future. Both sides
will need to stay close to shared rules in areas such as workers' rights and environmental
protection. If either the UK or the EU shift their rules too far, the other side could introduce
tariffs
Trade
Research has suggested that policy uncertainty, starting even months before the referendum
(Graziano et al. 2021; Douch & Edwards 2021), has had negative impacts on trade with the
EU (Crowley et al. 2018), acting as a barrier to trade that is equivalent to a tariff of between
1.7% to 8.7% (Osnago et al. 2015; Ahmad et al. 2020; Douch & Edwards 2021). In addition,
the customs and regulatory border introduced following Brexit resulted in non-tariff barriers
such as customs checks and restrictions on traded products. Overall, research suggests that
Brexit depressed UK-EU trade by 10% during the referendum phase and 15% during the
transition phase (Buigut & Kapar 2023), with greater effects on UK imports from the EU
(15-20%) than UK exports to the EU (10-16%) (Freeman et al. 2022; Kren & Lawless 2022).
The OBR estimates that the volume of UK imports and exports will both be 15% lower in
the long run (10 years after referendum) than if the UK had remained in the EU. The OBR
claims that this assumption has been validated by recent data that have been published since
the signing of the TCA between the UK and the EU. The OBR cites research by Springford
(2022), which argues that net trade in goods was 7% lower in June 2022 than it would have
been had the UK remained in the EU, but there was less definitive evidence on the impact on
net trade in services.
Figure 2.1 shows clear substitution effects from EU to non-EU imports of goods and
services. The UK constitutes a small market for the rest of the EU, meaning EU firms are
much more likely to conduct business as usual without needing to complete additional new
paperwork or comply with new regulations to sell to the UK. Goods exports to EU have
somewhat recovered in comparison to non-EU exports, but this is not the case for services
exports. To the best of our knowledge, only one research paper (Springford 2022) discusses
the empirical differences in Brexit impacts on goods and services trade. However, the results
of that study are reporting in terms of net trade, not broken down by exports and imports.
Thus, there is insufficient conclusive evidence on the difference in the impact on exports
relative to imports of goods and services following Brexit.
Investment
There is a consensus that Brexit has had a negative impact on UK investment levels since
2016, supported by both observed data and survey evidence. The Office for National
Statistics (ONS) (2023a) reports that business investment in the UK fell sharply from the
middle of 2016 onwards (i.e., from the point of the referendum). This decline in investment
has been attributed to factors such as increased uncertainties, higher trading costs and
reduced access to talent for businesses.
Several papers attempted to estimate the effects of Brexit on investment: Haskel and Martin
(2023) used a projected growth rate of 0.5% per quarter (averaged from 1997 to 2016), while
Springford (2022) conducted a 'doppelgänger analysis (projected a combination of other
countries that best match the set of economic variables for the UK before the referendum).
They estimated investment was 10% lower in Q2 2022 than what it would have been in the
absence of Brexit. Both accounted for the effects of the COVID-19 pandemic, which caused
a sharp decline and rebound in business investment, an outcome that is most likely to have
happened even in the absence of Brexit. Using a large survey of businesses in the UK, the
Bank of England estimated investment to be 23% lower in 2020/21 than what it would have
been in the absence of Brexit.
The OBR assumes that Brexit has affected levels of investment in two ways: first due to
uncertainty about the future of the UK's trading relationships, and second due to resources
being diverted from more productive investment towards Brexit preparations. Additionally,
the OBR consistently lowered its medium-term investment growth expectations between late
2016 and early 2020, reflecting the idea that Brexit might have a longer-term effect on the
attractiveness of the UK as a destination for investment.
Relative to the OBR's last forecast before the Brexit referendum (in March 2016), business
investment in November 2019 was 16.2% lower than previously forecasted, just before the
COVID-19 pandemic (see Figure 2.2 below). This difference between forecasted investment
and observed investment over 2016-19 likely reflects the short-term effect Brexit had on
investment growth.
Key findings
1. GVA in the UK and London to be lower due principally to Brexit
Annual GVA growth over 2023-35 is expected to be 0.4 percentage points (pp) slower in the
UK and 0.3 pp slower in London than if the UK remained in the EU. As a result, GVA is
projected to be 10.1% and 7.5% lower by 2035 in the UK and London respectively, than in a
scenario in which Brexit had not occurred.
2. Brexit to stifle employment growth in the UK and London
Slower output growth leads to fewer jobs. The UK is projected to have nearly 3 million
fewer jobs post-Brexit by 2035, approximately 500,000 of which would have been in
London.
3. Strong negative impacts on investment
Brexit has contributed to slow investment growth. By 2035, investment in the UK is
projected to be more than 32% lower than it otherwise would have been, which will lead to
lower output. The impacts of weak investment would considerably affect London's economy
as well.
4. Imports to fall more than exports
By 2035, UK imports are projected to be 15.8% lower and exports 4.6% lower than if the
UK remained in the EU. Net trade is set to become positive, but only because the volume of
imports falls more than that of exports.
5. Productivity in London to remain similar
London's productivity is projected to remain similar to what it would have been had the
UK remained in the EU. However, employment and GVA in London would have been
higher by 2035 in the absence of Brexit.
6. Brexit to widen the gap between London and rest of the UK
The productivity gap between London and the rest of the UK is projected to further widen
following Brexit. This is because, compared to London, the slowdown in GVA growth is
larger outside of London, while the slowdown in employment growth is about the same.
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Name: - Dhruva Khunekari
Rajvardhan Kandage
Shilpesh Gawade
Samarth Singh
Achint Kaur Gandhi