10 questions about UK trade answered in our new research

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Today we publish a new report: Global Trade – run aground or structurally sound? This blog outlines 10 key facts about UK trade put forward in our research.

1) How important is exporting?

Exporting is widespread in manufacturing. 95% of our survey respondents export to some degree, whether directly or indirectly via their supply chains. And a quarter of companies generates 50% or more of their turnover from overseas sales.

Exports-as-perc-of-turnover   

2) Why is it important to export?

For 64% of companies, exporting is a way to increase sales beyond the limited domestic market – a reminder of the importance of trade as a source of business growth.

Reason-for-exporting 

3) Where do firms export?

The EU market remains of overwhelming importance for manufacturers, with 96% of survey respondents selling into this destination. However, a significant proportion of companies are developing a spectrum of market opportunities outside the EU.

Where-do-uk-x-go 

4) What shapes the geography of UK exports?

Unsurprisingly, the EU appears as an outlier on market characteristics, with proximity and tariff-free trade regarded as top market advantages. By contrast, market potential is the most cited advantage outside the EU.

market-advantages

5) How did UK exports perform in recent years?

UK exports of manufactures have consistently underperformed since the economic downturn. Neither demand conditions in key markets nor sterling movements fully explain this export puzzle.

uk-x-performance 

6) Is it a UK phenomenon?

Not really. Ten years after the great recession, trade volumes worldwide are still 20% below their pre-crisis trend. Economists believe structural factors are at play and explain what has been the weakest recovery in world trade in decades. Protectionism comeback, foreign governments’ intervention to support local businesses and trade finance drying up are signs of a complex, new trade order.

7) Protectionism: how big of an issue is it for UK manufacturers?

Industry has been at the sharp end of the structural shifts, particularly in emerging markets. For example:

  • One in six exporters to China has seen their trade negatively affected by Chinese government intervention to support local businesses

  • One in ten companies selling to the US reported an increase in tariffs

  • One in seven exporters to the US and Brazil faced a restricted access to these destinations because of protectionist policies.

8) How vulnerable were UK exporters to tightening trade finance conditions?

One in five exporters in our survey were hit by the squeeze in trade finance conditions in recent years, with capital goods exporters being the most affected.

Manufacturers selling to emerging market economies were most vulnerable to tightening trade finance conditions, reflecting the greater impact on firms operating in these markets from compliance requirements with anti-financial crime regulations.

9) To what extent was UK exporters’ performance affected?

Disruptions to trade identified in our survey affected exporters’ performance in emerging markets.  More than half of companies selling to China, India, UAE and Brazil and experiencing at least one of the structural trends reported a drop in export sales to these markets. By contrast, exporters to the EU or the US experiencing structural shifts in trade were less likely to report a drop in exports.

10) Is this a new normal?

After “very difficult” G-20 talks on trade – as Angela Merkel puts it – last weekend, it is hard to claim free-trade is back on top of the international agenda. And with Brexit still unfolding, the global trade context is likely to transform in the coming years. This means that business as usual is not an option for exporters and policymakers.

Have a look on the blog later this week as Lee will outline our messages to Government and manufacturers on what needs to be considered as the UK develops a new trade policy.

The full report is available here. We will be blogging and tweeting about key findings this week so stay tuned.

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Economist

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