"A post-geography trading world?"

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The UK’s international trade secretary Liam Fox said on Thursday that the UK could “survive” without a deal with the EU. He reiterated his argument that we are on the verge of a “post-geography trading world”. He said:

"Globalisation has eliminated many of the barriers of distance and time that once separated nations. As the global economy shifts towards services, knowledge and digital trade, the geographic proximity that underpins the traditional trade bloc will become increasingly less relevant."

Does geography still matter for exporters? And Why?

Here are a few points Liam Fox should be considering more closely in the context of a future deal with the EU.  

1) The EU is the UK's largest market by value

In 2016, £144bn representing 47% of the UK's exports of goods went to the EU.

Where-do-uk-x-go 

2) Almost all UK exporters sell to the EU

The EU remains overwhelmingly our most important export market, as our recent report on trade suggests

Although companies are developing a spectrum of market opportunities outside the EU – over seven in ten export to the US, around half export to China, India and UAE and 35% export to Brazil, the EU market remains the top destination for exporters with 96% of our survey respondents – 291 manufacturing employers, with 70% employing more than 50 people – selling into this market.

companies-selling-to-market-freq 

3) Proximity is seen as the biggest advantage of the EU market

When we asked companies about the advantages of selling to the EU, half of companies cited proximity as the biggest advantage of the EU market, followed by tariff-free trade in second position.

 proximity-biggest-advantage-EU-2 

4) ... And it is what makes the EU market so unique

Outside the EU market, companies are seeking fast-growing demand for their products when they go international. India, UAE and China are all cited by more than 55% of companies as offering good market opportunities, while the US is seen as on a par with fast-growing emerging economies in terms of demand growth.

market-advantages-2  

5) Geography vs. demand as market advantages

Proximity was by far the most cited advantage of any single destination we asked about in our survey. Demand prospects appear as a driver of export sales in emerging markets and the US, but this contrasts with less efficient export procedures and unfavourable tariff regimes when compared to the EU. Still not convinced?

prox-demand-2 

6) Protectionism comeback in the aftermath of the financial crisis is a reminder that entering new markets is not plain sailing

Our research highlighted that manufacturers faced an increasingly complex trading environment in the recent years. For example:

  • one in six exporters to China has seen their trade affected by Chinese government intervention to support local businesses;
  • one in seven exporters to Brazil have experienced a surge in protectionist policies and;
  • a tenth of companies selling to the US experienced an increase in tariffs.

This means that it will take more than demand growth to sustainably turn around the UK's net trade position.

strcutral-factors

7) European growth turned a corner

Manufacturers have signalled buoyant demand coming from Europe in recent months. Understating the importance of the EU market for UK exporters because growth is happening elsewhere is untimely when Europe was the bright spot in the global landscape in the first quarter of the year.

demand-from-europe  

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