The FT City Network is a forum of more than 50 top figures from finance, business and policymaking in the UK. Each month it debates a topical subject online. This month we asked members of the FT City Network to comment on the outlook for “Global Britain” and the challenges the country faces. In particular, as the UK loosens ties with Europe as part of the Brexit process, how closely should it align itself with other key economies, from Saudi Arabia to China, India to the US? How should the government balance perils and opportunities? Below is a full transcript of the debate.
A government mission to negotiate frictionless trade with Europe in a post-Brexit world must not soften our ambition to develop our wider global trading relationships for the future.
To prosper, we must underpin the relationships of the past and expand our contact with other key economies.
Changes of leadership are often a catalyst to change in trading opportunities. In India and Saudi Arabia, new, innovative and bold leadership is driving cultural and economic change at an unprecedented rate, whereby new industrial partnerships can lead to mutual prosperity. Conversely, in the United States, there is an increasing risk of protectionism.
Only by government and industry working together in lockstep can we hope to counter protectionist trends, harvest new trading opportunities and influence international values and behaviours. Our future prosperity depends on it.
The UK is a knowledge based, mainly service led economy. Although our export performance in services is second only to the US we have underperformed across most export categories, particularly since 2007.
As EM economies become more service orientated we cannot repeat the mistakes we made when their demands were mainly manufactured goods. To succeed we need to form “coalitions of commercial doers” across government departments, business, professional services and finance, balancing economic, social and political objectives.
The UK has a long list of industries that should trade more; med tech; ed-tech; insure-tech; fin-tech; alongside aerospace, motor, games, leisure (particularly sport), drinks, energy and many others. We also have six of the world’s top 25 universities demonstrating the quality of our knowledge base, scientific research and teaching and their commercial reach is expanding.
We have a choice. We can either repeat the mistakes of the past or self-determine our success through positive constructive collaboration. As China, Saudi Arabia, Brazil, India and others liberalise economically and socially and increase their need for services and advanced manufacturing, there are huge growth opportunities for the UK. Even the US, where so many of our leading businesses have unnecessarily failed in the past, provides similar opportunities. Given Brexit, we need to stop dwelling on who is to blame for past and current failures and focus on delivering future success through “inclusive capitalism”.
City of London Corporation
The UK is leaving the EU, yes, but it’s not leaving Europe, and Brexit doesn’t diminish the desire the financial and professional services sector has to continue working with our closest neighbour and ally.
It does of course mean that we need to work even harder on developing opportunities elsewhere, and identify where it is that we can contribute to other economies’ aims and aspirations.
That doesn’t though mean we need to align completely with those aims and aspirations, and of course we need to be open-eyed about issues over which we disagree, and prepared at times to say “no”. Our regulators are the finest in the world, and well-equipped to spot opportunity and risks.
But none of this is new, it’s of the nature of international trade.
The UK is looking across the globe for opportunities to strengthen ties with new and existing international partners.
The single commonality that all the major economies share, is that Brexit does not detract from the world leading services that the UK offers. Our expertise, rule of law and deep pools of liquidity make the UK a prized asset to the rest of the world — Brexit or otherwise.
It’s clear that the UK’s relationships with the EU, its institutions and its 27 member states — whether they are social, political, trade, economics, or based in security — will change to some degree as we follow through on the referendum result. But as the EU is the UK’s single largest and closest trading partner, it is crucial that the UK government places the highest priority on getting this new relationship right and as good as it can be. At Citi, we are pleased that the chancellor and prime minister have focused on the inclusion of regulated services as part of the long term deal they seek to strike with the EU, and that they have decided that the way forward for financial services (and, I hope, other services) is a regime based on mutual recognition.
The next priority is making sure that the City of London (and by this I mean the millions of people across the UK who work in these high value-added sectors, not just in London or the Square Mile) remains open and receptive to high skilled people, capital and investment from all over the world. This is how it thrives and has done, largely successfully, through many ups and downs over the centuries. This should not be misconstrued as an invitation to low quality business, dubious funds and associated sponsors and intermediaries. No, it is about making sure that everyone can use a centre of excellence with consistently high and global standards to conduct their business to enable growth and economic progress. If the trade and business and its related financial and human capital is sound, then the UK should make sure it has a welcoming home here as a global trade and financial centre. The UK has a very real and credible opportunity and responsibility to advocate for free and growing global trade and business and play a leading role in the development of sustainable, forward looking, holistic and coherent global policies, institutions and regulation.
We are already a global trading nation, and it’s important we encourage that open, outward looking perspective. According to BIS, our openness to trade — the sum of exports and imports as a % of GDP — is now above 60%, which is the third highest of the G8. While we of course hope that the EU will accept a deal that provides for as frictionless trade as possible, the EU’s share of UK exports has declined from over 55% to under 45% over the past 20 years and will continue to shrink in the years ahead as the EU’s share of world GDP continues to decline. It is the markets outside the EU that are growing fastest and where we must concentrate our efforts to drive our future prosperity. Given our significant competitive advantages as a nation — our political and legal system, language, open markets, record of innovation — we should be confident and optimistic about our ability to seize this opportunity under any scenario. Let’s support this positive thinking rather than knock it.
Rather than starting with the countries, it makes more sense to start with this country’s values, heritage and areas of advantage. The countries/regions that best fit can then select themselves and — to the extent the partners do not fit — the trade-offs are visible, enabling us to assess whether they’re worth it, and particularly not being seen post Brexit as a supplicant.
Examples include being a leading upholder of an open global market economy (at a time when the US has created a vacancy which is improbably being filled by China), heritage includes the Commonwealth, the United States and the Middle East, where the UK maintains disproportionate influence and respect, and areas of advantage include our intellectual resources, especially the university system and its research prowess. Hence the importance of the UK remaining open to foreign students and particularly having the flexibility regarding post education residency. The vast global diaspora of students educated in this country is an enormous asset to the UK.
Culture is also one of our most successful exports and entails significant “soft power” which we should use to our advantage, especially in countries that still look to us for example.
Given the UK’s relatively small scale globally, the only plausible way in my view to punch above our weight is through the example we set by how we look after our own citizens and the values we stand for in our key partner relationships.
We should be very proud of our excellent history and achievements in international trade. There are fantastic opportunities for businesses in the UK to increase exports and there is much to learn from other nations that outperform us on exports.
We are already the number 1 FDI investor in the US with over $560bn in investment and over 1 million jobs created by UK companies in the US. Similarly, the US is the number 1 FDI investor in the UK, with $590bn invested by American companies supporting over 1 million jobs. And that’s all without a “trade deal”. The UK is the number 1 investor in India among G20 countries and is China’s second largest trading partner in the EU, and eighth worldwide. We recently signed over £9bn of deals in China, again without a trade deal.
And how can we possibly forget the EU? Accounting for over 45 per cent of British exports and with around 450 million consumers, it remains the single biggest market in the world and our strongest trading partner.
All the quality analysis and evidence says trade deals with the US, Canada, Australia and New Zealand combined impact UK GDP by less than 3 per cent. Meanwhile, the estimated trade increase from concluding FTAs with the BRIICS (Brazil, Russia, India, Indonesia, China and South Africa) countries combined is even smaller, at just over 2 per cent.
It is misleading to argue that trade deals are the be all and end all. There is so much else that can be done to drive up our exports, so it’s time to share the facts and have an evidence-based discussion.
Great products and services will be welcomed by customers globally. Our universities and great businesses have much to offer and we can increase exports significantly. Great trade deals can be, and have been, achieved through EU membership and the EU has certainly not prevented Germany outperforming the UK in exports to China, selling 4.7 times more to China than the UK does, and all without a trade deal. Being in a customs union doesn’t prevent growing trade with key markets such as the US and China.
In a post-Brexit world, there will be clamour to seek new and exotic global partnerships as proof of our ability to “make it on our own”. Long term, these new partnerships may be very beneficial to UK plc but in the short term, our greatest immediate opportunities will continue to lie with our European neighbours.
According to the FSB, the majority of small businesses continue to see Europe as their priority market for global trade post-Brexit. At Funding Circle, when we have asked our customers what type of trading relationship they want post-Brexit, more than half tell us they would prefer to be part of the European Free Trade Agreement (EFTA) and the single market because of the benefits and ease of exporting to such a large customer base. Maybe for larger companies trade agreements will open up opportunities but small businesses don’t typically have the resources, time or government support to form trading relationships in far-flung lands — in their world, proximity tends to be key.
We have the world’s largest trading bloc on our door. Wherever we end up with Brexit we should be looking to deepen our trading relationships with our European trading partners, not loosening.
Get alerts on FT City Network when a new story is published