Posted by: westlancashirerecord | November 26, 2018

Macron in Charge Of The British Economy?

While Paris was burning last week  and Macron was decried, he was giving more priority to the UK economy and demanding fishing “rights” than to the French situation.

UK business groups say that leaving the single market and the customs’ union will make matters even worse, but imagine the UK on the outside today, weighing up the pros and cons of joining a club tomorrow where the trading rules amplified our weaknesses and nullified our strengths. Would we really be gagging to join?

With a market share of 5.8%, France is one of the United Kingdom’s leading trading partners. According to French customs, French exports of goods to the United Kingdom stood at €31.8 billion in 2016 (fifth-largest customer), as against €23.2 million for British exports to France (seventh-largest supplier). In 2016, the United Kingdom thus accounted for France’s largest trade surplus for trade in goods (€11.8 billion). 

In June 1970 three days before the general election, official figures showed that Britain’s trade had taken a marked turn for the worse. Government claims that the economy was healthy took a knock.

That was a time when the size of Britain’s trade gap was front page stuff. Headlines screamed about the UK being back in the red. The TV news bulletins were full of it. Harold Wilson is supposed to have blamed it for his unexpected defeat at the hands of Edward Heath the following Thursday. All this for a trade deficit of just £31m, distorted by the arrival in Britain of a couple of Boeing’s new jumbo jets.

Times have changed and Britain’s performance has grown steadily worse over the subsequent decades. In 1970 as a whole, the trade deficit averaged 0.2% of GDP, a performance that today would be greeted with jubilation rather than despair. Not since the early 1980s has the UK run a surplus on goods, and at the last count the annual deficit was running at £135bn. The deficit in manufactured products alone stood at £95bn.

Brexit has moved trade up the political agenda. Forty-three per cent of the UK’s exports in 2016 went to other EU countries, and business groups are keen to ensure that post-departure impediments to trade are kept to a minimum.

Britain’s trade performance with the rest of the EU has been woeful. According to data produced by the House of Commons library, it has run a trade deficit in goods and services combined in every year since 1999. What’s more, the deficit is getting bigger over time, doubling from £41bn to £82bn between 2012 and 2016.

The UK’s trading performance with the rest of the world has been better. Exports and imports were broadly in balance from 1999 to 2011 but since 2012 there has been a fivefold increase in the surplus from £8bn to £39bn.

The economist Christopher Smallwood has been looking at what has been happening to the UK’s manufacturing trade deficit since 2005. He finds that almost all sectors are running a bigger deficit. The deficit with Germany has increased by 5% a year, with France by 7% a year and with the rest of the EU by 11% a year. Smallwood says the UK’s trade performance has deteriorated because the single market and the customs union are designed to suit other countries, Germany in particular, but not Britain.

“It is not surprising that our trade deficit with the EU continues to grow, because the single market and customs union does not represent a free trade area. It is a free trade area only in goods. Manufactured goods represent Germany’s comparative advantage, whereas ours is in services. We have entered into a lop-sided arrangement under which all impediments to trade have been removed from areas where our trading partners are strong but not from areas where we are strong. So obviously our overall trade deficit with them has gone on rising, and will continue to do so”.

Equally, it is hard to deny that other countries are doing rather better out of the current trading arrangements. Britain’s trade deficit for goods and services combined with the EU is 4% of GDP and rising. More than two-thirds of the deficit in goods is with the EU. The surplus in services is around a sixth of the deficit in goods.

General UK government gross debt was £1,763.8 billion at the end of the financial year ending March 2018, equivalent to 85.8% of gross domestic product (GDP), 25.8 percentage points above the reference value of 60% set out in the Protocol on the Excessive Deficit Procedure. On this basis we should be kicked out of the EU instead of pleading on our knees for an agreement to leave!

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