For too long, the UK market has been an easy touch for foreign, and particularly European, producers, helping to generate one of the largest trade deficits in goods of any advanced economy in the world. Put simply, we buy a lot more produce from them than they do from us.
Ever since the turn of the century, however, it’s just got bigger and bigger. Fortunately, this widening gap in goods has been partially offset by a growing surplus in services, particularly high value business and financial services.
Even so, the UK economy manages to generate a consistently large current account deficit, making it highly dependent on inflows of foreign capital to prevent things tipping over into a fully blown balance of payments crisis of the sort that used to plague the nation in the Sixties and Seventies.
For a multitude of reasons, it would therefore be nice if we made more stuff. With its levelling up agenda, and its determination to make the economy more self-reliant and resilient, the Government thinks so too. Might Brexit provide such an opportunity? UK/EU third country import tariffs for selected products
Source: The Online Trade Tariff/ Access2Markets
Some background. It’s hard to put an exact date on when the UK lost the plot as a manufacturing nation, but roughly speaking it coincided with Britain’s accession to Europe’s common market.
That’s not to attribute cause as such to membership of the EU. Grown fat and lazy on once captive imperial markets, large parts of Britain’s manufacturing base had long since become internationally uncompetitive.
But those markets were increasingly shutting us out in their own drives for self-sufficiency. That’s why the UK joined the supposed alternative of the European Economic Community; sadly, many British firms found the adjustment to this more demanding, competitive landscape difficult, or even impossible.
The harsh medicine of the early Thatcher years sealed their fate.
But let’s not exaggerate here. In point of fact, Britain produces more manufactured goods in absolute terms today than ever. It’s just that service sectors have grown by far more.
Relative to GDP, manufacturing output has been falling for 50 years or more, and is today just a third of its previous level. In itself, this is no bad thing. Thanks to globalisation and technological advances, manufactured goods prices have been falling rapidly relative to others.
Britain’s comparative advantage in services, where prices have been racing ahead relative to goods, has therefore stood the nation in good stead, enabling citizens to buy cheaply from abroad what they no longer produce at home.
Yet the transition has also been a socially destructive one. Once proud manufacturing regions have been rendered all but obsolete. We have, in a sense, traded our dignity for cheap foreign pap and a life of perpetual service. In some respects, we’ve only ourselves to blame.
Britain’s markets are more open to foreign invasion than almost any other country on the planet. UK consumers are also seemingly far less loyal to national brands than their European peers. “Buy British”, and “I’m backing Britain” campaigns have fallen on deaf ears. We like the choice and price of what our relatively unprotected borders give us.(more…)