10 March 2021

A UK trade policy for the 21st century

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The UK was the first industrialised nation to shift away from protectionism and towards international trade, helping to contribute to its own and the world’s prosperity. Now, in the 21st century, Britain has a historic opportunity to promote exports and open up global markets that can support its ongoing recovery from Covid-19 – and do so in a manner that promotes fair and free trade.

Just as great economists like Adam Smith and David Ricardo helped to shift thinking away from mercantilism in the 18th and 19th centuries, this is the time to fashion a fair and free trade policy that can generate jobs across the UK and open up opportunities for British businesses around the world.

As a member of the revamped Board of Trade which includes business, academia and government, our new report ‘Global Britain, Local Jobs’ sets out how the UK can use its independent trade policy to herald a new era rich in jobs and opportunity.

The 21st century global economy has different drivers that suit the UK’s comparative advantage, that is, its competitiveness. The rapid growth of services and digital trade, as well as burgeoning “green” industries, are sectors in which the UK has strengths. 

But these areas of trade are not as open as manufacturing trade. This points to the need to reform the global trading system so that British businesses can access more markets. Opening up services and digital trade will also increase goods trade since manufacturing includes embedded services such as engineering and R&D, which is why the World Trade Organization (WTO) as well as plurilateral efforts are focused on liberalising global trade in services and data.

Another notable trend is the emergence of a new global middle class. A remarkable 1.2 billion people have been lifted out of extreme poverty since 1990. And millions have entered the middle class. By the end of the decade, more than half of the world’s population are expected to reach middle-income level and an estimated two-thirds of the middle class will be in Asia. Middle-class consumers experiencing rising living standards will be new sources of demand for high-quality goods and services, which the UK is well equipped to serve. But, it will require liberalising and upgrading the global trading system so the UK can make the most of these opportunities.

Therefore, the Board of Trade’s new report makes the case for free trade and the ways in which the UK can promote reform at the WTO and work with partners to opening up markets in a fair and greener manner.

Importantly, the Board of Trade also examined the evidence of the impact of international trade on jobs across the UK. Today’s report is issued alongside new research showing that trade creates well-paid jobs across the UK. The study carried out by the Fraser of Allander Institute at the University of Strathclyde, and commissioned by the Department for International Trade, estimates that UK exports support around 6.5 million full-time jobs, which is just under a quarter of all jobs. Export-related jobs and exporting businesses are also found to be more productive and paid higher wages.

Trade-led jobs are also located across the UK. The research found that most of these jobs – around three in four – are found outside London, with around 630,000 in the north-west of England and 468,000 in Scotland.

The Board calls for the UK to lead the charge for a better, fairer and greener international trading system. By working with partners, the UK can help reform the global rules-based system so that the rules around services and digital trade can keep up with economic trends. By doing so, the UK would be opening up a fast-growing part of the global economy for its businesses and giving them opportunities to serve consumers abroad and at home. By doing so, the evidence is that well-paid jobs will be supported across the UK.

The devastation from Covid-19 has been vast, and trade can play a key role in the economic recovery. Today’s report by the Board of Trade has set out a way forward to ensure that UK trade policy makes the most of opportunities of the 21st century world.

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Linda Yueh is an Adviser to the Board of Trade, and an economist at Oxford University, London Business School, and LSE IDEAS.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.