Trade deals with our neighbours matter a lot

by Jack Schickler | 10.06.2016

Brexiteers make two main claims about why quitting the EU’s single market would not matter. The first, as espoused by contributors to Brexit: the Movie, is that trade depends not on the legal and political framework, but on having good businesses selling good products. The second is that physical proximity no longer has a bearing on trade either. As Daniel Hannan MEP puts it: “In the internet age, geographical proximity has never mattered less. Culture and kinship trump distance”.

These two claims are easily disproved by looking at current trade patterns.  The countries to whom we are close and with whom we have deep trade integration – namely, the EU – take nearly 50% of our trade. In spite of the language and legal system the UK shares with the US, we trade 3.7 times more with the EU. Given that the EU economy – less the UK – is about 10% smaller than the US, then on the Brexiteers’ reasoning, our trade with Europe should be about a quarter of its current level.

The US figures are not an anomaly. As the FT’s Chris Giles observes, comparing countries of a like size, we trade 3.3 times more with Spain than with Australia, and 3.9 times more with the Czech Republic than New Zealand. In 2014, according to the Office for National Statistics, UK exports to Ireland, a country of 4.6 million people, were 50% higher than those to China, which has 1.4 billion.

The answer is simple. Physical proximity still matters when it comes to trade. Even for non-tangible services like finance and law, in which Britain excels, time zones matter – Shanghai and New York are mostly asleep when City markets are open.

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    And the trading arrangements you have matter too. It should come as no surprise that removing trade barriers – the aim of the EU’s single market – boosts trade between EU members. Looking at the research into the impact EU membership has had on the UK, a study by the London School of Economics’ Centre for Economic Performance reckons leaving could cut our trade with the bloc by 25% – even if we then immediately rejoined the European Free Trade Area, alongside the likes of Switzerland.

    To compensate for that we would have to do more than tariff trimming or slick marketing of British products. We would have to double our trade volume with the US, or treble it with China. Of course, we should keep pushing to do more trade with countries further afield. But attempting to make our major strategic relationships with countries thousands of miles away would be swimming against the tide.

    Edited by Hugo Dixon