Britain was once known as the workshop of the world. Could it become so again? Simon Wilson reports.
Is Britain good at exporting?
Not as good as we used to be. In the past two decades, our share of world exports more than halved, from 5.5% in 1990 to 2.6% at the start of 2010. And it’s not just down to Asian economies emerging as low-cost manufacturing powerhouses. It’s also because nations tend to trade with their neighbours more than they do with far-flung countries, and our neighbours have become low-growth markets. International business has always been driven far more by transactions within regional blocs (in particular Europe, North America, and east Asia) than by inter-regional trade. Some 90% of the cars made in Europe are sold in Europe, for example.
What does that mean for Britain?
All the booming economies are on the other side of the world – so it’s not looking good. America is still our largest single national market, with around 15% of all exports. But otherwise our exports are dominated by the low-growth, demographically challenged economies of Europe. (The next biggest single export markets are Germany, the Netherlands, France, Ireland and Belgium.) A full 55% of British exports go to the eurozone – 7% to Ireland alone. As PricewaterhouseCoopers’ chief economist John Hawksworth pointed out in a recent report, the contrast with our exports to the booming Bric economies is ominous.
Why’s that?
Because as the likes of Ireland stagnate, the latest forecasts from the IMF project that China will grow by 10.5% this year, India by 9.7%, Brazil by 7.5% and Russia by 4%. Yet Britain exports the same amount of goods and services to these four giant markets, which between them account for nearly half the world’s population, as we do to our tiny neighbour. There’s nothing inevitable about this. Between 1985 and 2009, Britain’s exports to emerging markets fell from 4% of GDP to 2.6%, while Germany’s share rose from 5.3% to 11.6%, Japan’s from 3.7% to 6.7%, and Switzerland’s from 5.3% to 8.2%.
How much do we export to China?
More than we used to: in excess of £5bn of goods in the first three quarters of 2010, up 43% on the year before. In a Daily Telegraph article ahead of this week’s visit by vice-premier Li Keqiang, the Chinese ambassador to the UK was full of warm words about future co-operation, arguing that the time is ripe for a rapid expansion based on manufacturing that is “designed in the UK, made in China”. But in reality, the £2.6bn in trade deals announced this week to coincide with Li Keqiang’s visit are rather smaller than the similar deals with Spain ($7.5bn) and Germany ($11.3bn) he tied up on the previous two legs of his European jaunt.
What does Britain export?
The Office of National Statistics provides quarterly figures that go into astonishing detail on everything from “manufacture of cordage, rope, twine and nettings” (£57m in Q3 2010) to “macaroni and similar farinaceous” goods (a mere £8m). HM Revenue & Customs produce monthly figures (at Uktradeinfo.com) that handily break down exports by sector. Broadly speaking, Britain’s main exported goods are machinery; fuels and oil; cars, engines and motors; pharmaceuticals and medicines; and electrical equipment.
What about services?
Services are trickier to quantify (they’re known as ‘invisible’ trade for a reason). But by most reckonings, Britain is still the second-largest exporter of services in the world (compared to the sixth or seventh when it comes to goods). Even in a catastrophic year for the financial services industry, 2009 (the last year for which full figures are available), it’s astounding how well the sector held up. Britain’s trade surplus for that year in finance and business services (many of which are related to finance) was £47bn, covering more than half the deficit on trade in goods. What does that mean for Britain? It suggests that however much we need to ‘rebalance’ the economy in favour of export-led manufacturing, it would be unwise to forget how much we owe the City.
Can exports save Britain?
Yes
1. Britain is strong in design and technology, and well placed to expand its increasingly high-end, high-value-added manufacturing sector (which accounts for 13% of GDP, but over half of all export earnings).
2. The British government is on the right track, reorienting its foreign policy towards trade, especially with emerging markets.
3. There’s a lot of room for growth – Germany is the world’s second-largest exporter, accounting for one-third of its economy, and Germany is just as far away from China as we are.
No
1. As the supply chain becomes more global, any growth in exports is likely to mean growth in imports, too, doing little to narrow the trade deficit. Rolls-Royce exports great engines, but it imports the components it uses to make them.
2. Britain is too far from the high-growth markets to become a major exporter of goods to these markets. And we dangerously undervalue our services sector, especially finance.
3. The prospect of a stronger pound this year will act as a disincentive to firms to reorient their strategies towards exports.