Kemi Badenoch, the new UK International Trade Secretary, will be seeking more deals in Asia and US, but faces considerable challenges.
One of the prime minister candidates in the recent leadership elections Badenoch says that she is committed to faster UK economic growth, free trade and markets.
“Looking forward to unleashing Global Britain’s full potential so we can create more jobs, more growth and more opportunity across the UK,” she said when she met the department’s staff. “I am a free market conservative, very similar to Prime Minister Truss. And I’m looking forward to hearing lots of ideas to help spread the mantra of free trade, free markets and freedom across the world.”
Despite Badenoch’s spin, the task will be far from easy. William Bain, Head of Trade Policy at the British Chambers of Commerce (BCC) is concerned about the differences between the EU and UK over the Northern Ireland customs border. The fear is that the EU will renew tariffs on UK goods.
In a world in which inflation is accelerating and economies are slowing, UK trade data in the first half of the year is falling short of previous 8.5 per cent budget export growth forecasts, he fears.
Badenoch, who grew up in Nigeria, studied computer systems engineering at Sussex University and then law, had financial experience as a junior minister in the Treasury. Since she hasn’t been involved in international trade, she is likely to initially follow policies of her predecessor Anne-Marie Trevelyn, who’s now Transport Secretary.
A key task is to complete negotiations to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). According to a strategic negotiating document, the post Brexit thinking behind joining, is an estimate that “almost 90 per cent of world growth is expected to be outside the European Union over the next 5 years”. The document adds that 65 per cent of the world’s 5.4 billion middle class consumers are forecast to be in Asia by 2030.
The document estimates that CPTPP member nations, with some 100 million people with household incomes matching the UK median of £31,500 (S$51,000), are already an significant source of demand for British products. Joining would secure lower tariffs for exports such as whisky and cars. CPTPP also benefts Britain’s services exports, including travel, technology and financial services. The UK already has bilateral free trade agreements (FTA) with several CPTPP nations including Singapore. CPTPP members’ economies accounted for £110 billion (S$178 bn) worth of UK trade in 2019 and the 2016-2019 annual growth in UK trade with CPTPP members was, on average, 8 per cent a year, the document adds. UK exports to members are already set to increase 65 per cent from £57 billion to £94 billion by 2030, the document predicts.
India and UK FTA talks continued to a fifth round in July and the aim is to complete negotiations by the end of October. The bilateral trading relationship is already significant, amounting to £23.3 billion in 2019.Under an FTA, UK exports to India could increase by £16.7 billion by 2035, a dedicated trade strategy document says. The document estimates that India’s middle class is expected to double from 30 million in 2019 to 60 million people in 2030, before reaching nearly 250 million in 2050. Such growth would obviously be a big boost to tariff free UK exports.
Failure to negotiate deal with US, Britain’s biggest single trading partner
Critics complain that Theresa May and Boris Johnson administrations failed to take advantage of FTA offers from President Trump. By now negotiations would be well under way. So far the Biden Administration has side lined overtures but perhaps Badenoch can place pressure on the President because the UK is the US’ strongest backer in the Ukraine war.
In the meantime, the UK has signed a trade “memorandum of understanding” with Indiana and aims to sign similar deals with other US states. At £223.4 billion or 16 per cent of the UK’s total goods and services trade, America is by far the largest individual trading nation with the UK. Moreover, the UK is in surplus with the US as exports to the US amounted to £133.9 billion in the 12 months ended March 2022 against £89.4 billion imports.
Trade experts such as Bain of BCC fret that the UK’s exports of goods and services aren’t matching a surge in energy and other imports. The pound has depreciated by 18 per cent against the US dollar in the past 12 months and large percentages against Asian countries, including the Singapore dollar. But the fall against the euro has only been 2 per cent and the European Union accounts for 42 per cent of the UK’s exports and 45 per cent of imports, according to official statistics. Devaluation has helped push up the costs of energy, raw materials and other imports from the US, China and rest of Asia. But with the small depreciation against the euro, it has had limited impact in helping exports.
Last year the UK’s total deficit between exports and imports was £29 billion. The trade in goods deficit, excluding precious metals, was £61.6 billion in the three months to July 2022. Services which totalled £34.6 billion lowered the total deficit to £27 billion, but there are fears that the surge in gas and oil prices will boost imports during the rest of the year.
The balance of payments current account, which includes investment income and transfers as well as trade, had a deficit of £60 billion in 2021 or 2.6 per cent of GDP, compared with £54 billion in 2020. But in the first quarter this year, the current account deficit was a whopping £51.7 billion or 8.3 per cent of GDP.