The UK has surged to become one of the biggest exporters in the world – but this isn’t all good news
- Written by Amr Algarhi, Senior Lecturer in Economics, Sheffield Hallam University
The UK’s rise to become the world’s fourth largest exporter[1] sparked a wave of celebration among the country’s policymakers[2], politicians[3] and trade analysts[4]. According to new data[5], the UK overtook major economies like France, the Netherlands and Japan, and sat behind only China, the US and Germany in 2022 with US$1.02 trillion (£808 billion) in exports.
Algarhi and Lagos
But from the early 2000s, imports exceeded exports consistently. This can’t be explained solely by the BoE interest rate decisions. And even though having a trade deficit is not necessarily indicative of an unhealthy economy[15], a prolonged deficit may raise concerns around the UK’s export-led[16] economic growth narrative.
Economic theory suggests that persistent trade deficits, especially where imports are taking the place of domestically produced goods, may highlight weaknesses in certain industries due to low productivity, a lack of international competitiveness, or both.
It can also point to over-reliance on certain imports, which can effectively make the economy complacent and limit efforts towards innovation and efficiency. This, in fact, is what UK productivity data[17] reveals – it has under-performed relative to comparable economies like France or Germany, with the UK annual average productivity growth rate being just 0.5%.
Interestingly, even though the sharp drop in imports and exports in 2020 can be explained by the COVID pandemic and Brexit in January of that year, the Brexit announcement itself did not appear to damage the UK’s international trade.
Quite the opposite actually, with both the UK’s imports and exports increasing from 2016 to 2020[18]. This may have been due to businesses building up stockpiles[19] ahead of a new post-Brexit deal that companies feared would increase costs.
Prime minister Rishi Sunak may well celebrate the UK becoming the world’s fourth largest exporter, but the future remains uncertain.
Leaving the EU’s single market introduced new trade frictions, despite the 2021 trade deal (the Trade and Cooperation Agreement[20]) allowing smoother UK-EU trade and driving up both imports and exports in 2022.
To counterbalance these frictions, striking more bilateral trade deals could increase UK exports to faster-growing overseas markets. But this depends on the terms negotiated[21], and how well they remove tariffs and reduce other trade obstacles.
Additionally, the UK’s ability to maintain its momentum relies on increasing domestic productivity, innovation, workforce skills and growth in emerging technology sectors. This will allow it to improve competitiveness.
In future, the UK’s global export ranking will be meaningless without sustainable trade surpluses. Long-term policies that add value to the UK economy and increase the range of goods and services the country exports will determine if 2022’s figures marked an anomaly – or reinstate the UK as a global powerhouse.
References^ fourth largest exporter (theconversation.com)^ policymakers (www.export.org.uk)^ politicians (www.linkedin.com)^ trade analysts (senecatradepartners.com)^ data (unctadstat.unctad.org)^ 60% (ukandeu.ac.uk)^ UK shores (assets.publishing.service.gov.uk)^ 2022 (tradingeconomics.com)^ imported intermediate inputs (www.ons.gov.uk)^ EU and non-EU (www.ons.gov.uk)^ data (unctadstat.unctad.org)^ £66.8 billion (researchbriefings.files.parliament.uk)^ Bank of England (www.bankofengland.co.uk)^ stronger pound (www.imf.org)^ unhealthy economy (www.export.org.uk)^ export-led (assets.publishing.service.gov.uk)^ productivity data (www.productivity.ac.uk)^ 2016 to 2020 (obr.uk)^ stockpiles (www.ons.gov.uk)^ Trade and Cooperation Agreement (commission.europa.eu)^ terms negotiated (commonslibrary.parliament.uk)
