Amid all the noise about Brexit, it seems David Davis, the former Brexit secretary, wants the UK to focus on future trade deals, in particular with the US, even if this means a looser trade relationship with Europe.
He argues that the present exit terms as negotiated by Theresa May preclude a deal with the US, even though the US wanted one. “We have to have a Canada+++ deal to allow us to have a free trade deal with America,” he tweeted on Friday.
There are three points to be made here.
First, America as a single country is already our biggest export market. We sold over £100bn of goods and services to the US last year, more than what we sold to Germany and France put together. So it is perfectly possible to have an extremely successful trading relationship with a country without a specific trade deal with it. True, trade with the US might expand faster if there were an enhanced trading agreement; indeed there would be little point in having one if it didn’t. But it is not essential.
Second, the EU, taken as a whole, is the largest single market for UK goods and services exports – taking some 43 per cent of the total.
Companies have built up complex supply chains with European industry and disruption to these would impose severe costs. In the case of the automotive industry, roughly 42 per cent of inputs come from other EU members. In food processing it is 27 per cent; in chemicals 18 per cent; in healthcare 12 per cent.
There is an argument to be made that these supply chains are too complex: put crudely, that we should not be shipping so much stuff backwards and forwards across the Channel and instead rely more on local suppliers. But in the short-term at least, it would be very difficult to reconfigure the way we do business and costs for everyone would rise. The Brexit deal protects those supply chains.
Third, what matters more than trading deals is that the UK continues to look outward to the world. Whatever you believe about the wisdom of the decision to leave the EU, and whatever happens in the coming weeks, the UK must remain an outward-looking economy. The current anguish is about the exit agreement.
It is not about future trading relations, all of which have to be negotiated with the EU and other countries – though it is true that the terms of the exit will, to some extent, shape those relations, at least for a few years.
The important thing to be clear about is that while trade deals are indeed helpful, and it is encouraging that our largest market, the US, seems to want to do one with us, ultimately what matters is the quality of what we produce. Do people in other countries wish to buy from us? We should not see this as an either/or situation in our trade with Europe and the US. It must be a both/and – as indeed it is at the moment.
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