With UK manufacturers feeling the effects of structural shifts in world trade, business as usual not an option for exporters or policy makers.
Short-term business surveys are hailing the benefits of a recovering global economy, but new research from EEF finds many export destinations are not as open to trade as they were before the financial crisis.
The research argues that it will take more than demand growth to sustainably turn around the UK’s net trade position, with the UK government needing to ensure a barrier-free access to the EU as part of any deal on Brexit and working to secure further liberalisation in partnership with the rest of the world.
In addition, EEF is calling for UK government export support to be included in the industrial strategy white paper.
The survey conducted with UK exporters finds manufacturers have broad exposure to different export markets in order to secure growth and build business resilience.
While companies pursue a whole range of market opportunities overseas, the EU remains of overwhelming importance for manufacturers with proximity to market and tariff-free trade regarded as top advantages.
Nevertheless, growth in exports has disappointed since the financial crisis, with volumes growing at an annual average rate of 1.3% per year, compared with growth of four times that (5.1%) in the decade leading up to the crash.
But, the UK is not alone. Trade volumes globally are more than 20% below their pre-crisis trend and have staged a much weaker recovery compared to past global downturns.
International organisations, such as the OECD and the IMF, have attributed only some of this to sluggish demand. Factors such as protectionism, trade finance drying up and overseas governments intervening to support local businesses are also holding back the recovery of world trade flows.
EEF’s survey of manufacturing exporters bears this out. One in six and one in seven companies exporting to China and India respectively have seen a rise in local government intervention to support businesses.
Manufacturers also report a rise in tariff levels, especially to the United States and Brazil where one in ten companies have seen an increase in the past three years. Companies exporting to these markets have also seen an increase in domestic preference requirements.
The availability of trade finance, once seen as the catalyst for trade activity, has declined significantly as a result of shocks to the international financial system. This has impacted on one in five manufacturers.
While the argument for such protectionist policies in the wake of the financial crisis may have been justified, their ongoing impact nearly a decade on and the potential for these to be further ramped up, raises questions about trade growth potential in the UK.