Britain runs a trade deficit with the rest of the European Union, but a trade surplus with the rest of the world.  The EU accounts for around half of British overseas trade, but this proportion is diminishing. These are central facts about Britain’s trading relationships with Europe, and ones which will certainly be misquoted and misinterpreted by both sides in the coming referendum campaign.

All statistics require careful interpretation, and especially trade statistics  The country of origin of imports, or of destination of exports, may not be the country in which the goods were produced or are to be used.  This is sometimes called the Rotterdam effect;  that city is Europe’s largest port and a disproportionate fraction of British trade is therefore with the Netherlands although most  goods only transit there.  Information about physical flows of oil and precious metals tells us about the location of markets for these commodities, rather than the nationality of users or producers.  The statements that follow are subject to these caveats.

British trade patterns are distinctive because Britain is the world’s leading exporter of services.  Only the United States sells more in absolute terms, but much less relative to the size of its economy.  While services account for only about 20% of global trade, they make up almost half of British exports.   Britain’s leading position in finance is part, but only part, of the story.  

       Britain has a trade surplus in transport and communications. in education and in entertainment, in publishing and in information services, in public relations and in management consulting, in retailing and in engineering services, in law and in accountancy.  Cars and pharmaceutical products are Britain’s largest manufacturing export sectors, but overseas sales of business services are almost fifty per cent larger than either.

Britain has a trade surplus in almost every single service sector – except tourism .Even though the scenery is pretty and the royal pageantry memorable. the country is cooler, cloudier and wetter than most of the world, including most of the EU,

Britain has a trade surplus in services vis a vis the United States, France and Germany, China and Australia. The US is Britain’s largest customer for services, though Ireland and Saudi Arabia are also very large purchasers, Services seem to have their own Rotterdam effect:  Switzerland and the Netherlands are both important buyers of UK produced services. 

  In fact there is only one country in the world – India – with which Britain has a significant trade deficit in services.  The UK is also a modest net importer of services from the Philippines and Pakistan, presumably because these are countries of choice for off shoring activities such as call centres.   

World trade is not a competition in which sovereign states compete to make gains at each other’s expense, but a mutually beneficial exploitation of the differing competitive advantages of nations.

Rich countries specialise in products which are skill and knowledge intensive, which may be high end manufactured goods, as in Germany, or services, as in Britain. We buy German machine tools and cars, Chinese hammers and toys, and Saudi oil. In return we have sensibly exploited the quality of the output of our higher education system and the advantages of the English language to sell asset management, structural engineering advice, and Downtown Abbey.

        Advanced economies today tend to trade freely in manufactures, but retain home country bias in their purchases of services. World trade negotiations have not played to British strengths. The EU has reduced barriers to trade in goods but   for most services, the single market remains aspiration rather than  reality. If there is a point to be made in the referendum debate based on analysis of UK trading patterns, that is the issue on which attention should be focussed.

Citation

http://unctad.org/en/PublicationsLibrary/ditctab2014d2_en.pdf    global trade data

Tourism Travel Account 1958-2014

 SN06091-2.pdf    HoC library background trade with EU info