Trading beyond Brexit: is the UK ready?

As the UK prepares to exit from the EU, there remain many uncertainties including around future trade arrangements. In the event that the UK loses tariff-free access to foreign markets, the government is already in the process of rolling over the EU’s existing free trade deals with other countries.

However, is the UK prepared for what it awaits once it leaves the EU? Despite the fact that China is soon to become the biggest economy in the world, it still amounts to only one percent of the stock of foreign direct investment in the UK. The EU and US between them account for almost 80 per cent.

So, the question is, how does UK step up and look outwardly beyond Brexit to compete in the global market when it is outside the EU and its trading arrangements?

Emerging economies

The People’s Republic of China represents a huge source of economic and trade potential for the UK. London and Beijing already have a well-established relationship in areas such as finance, telecommunications and higher education. The question is can this potential actually be realised, and if so, how?

Until now, the UK has been unclear about what it wants from its relationship with China, largely because of a lot of trading and economic relations has been within the confines of the EU. However, China’s burgeoning middle class could be a great asset for the UK, along with potential trade in technology, and finance and services market.

According to Professor Kerry Brown, Director of the Lau China Institute at King’s College London, if the UK aims to have a greater autonomy and independence as a foreign policy actor, then it would be with a partner like China that this is most likely to be manifested.

“China is the world’s largest emerging economy and already the source of the largest group of overseas students, overseas tourists and imported, manufactured goods. That makes the prioritisation of knowing about China more urgent and more significant.”

Middle income countries also hold potential. The UK has already established soft power in Brazil, for example, where there is particular interest in higher education. Meanwhile, large British companies, such as Shell, BP and Rolls Royce, are already well established in the country. Yet, if the UK hopes to support small-to-medium-sized enterprises to invest, experts argue the government will need to put more energy into developing knowledge bases in Latin America.

“Brazil is a big steady market and has a lot to offer – it’s a big developer of biomedicine for example,” explained Professor Anthony Pereira, Director of the Brazil Institute at King’s College London. 

Where are we now?

Despite the potential of emerging markets, the UK lacks substantial knowledge bases to reach its potential in some of these countries.

Dr Ciravegna adds: “This is not to say that we substitute European Union markets with emerging markets – but British companies would benefit from a knowledge base to stay abreast of emerging market trends and make timely foreign investments.”

Professor Brown supports this idea.

 “The UK needs to invest in building knowledge about China if it expects to have a balanced, sustainable relationship with the economic giant,” he says.

“It has the option to either follow the example of Australia or learn from the mistakes Australia has made.”

“If a global Britain is become a reality, we clearly need to know more about the world, including China. We need to mainstream Chinese knowledge – we’ve made ourselves vulnerable by not knowing enough about China.”

He highlights how one of the UK’s main economic strengths is in services, and the Chinese economy is now gravitating quickly towards being more service-sector orientated.

“A framework where more trade in these areas can be achieved would be the way to ensure a balanced trading partnership,” he explained.

Despite the concerns of the knowledge of some markets such as Brazil and China, there is better news when it comes to India – the UK’s 11^th largest export market outside of the EU.

According to Dr Rudra Chaudhuri from the India Institute, King’s College London, the UK has already been investing more energy into understanding the Indian market. He says more information is always welcome, but the UK is in a good position to trade with the India.

What should happen next?

Professor Brown believes that the biggest asset is the Chinese middle class and the UK needs to try and get a free trade agreement that we can access to those markets and plays to our strengths in the finance and services market.

Professor Pereira says the UK is not reaching its potential economically, but he is optimistic that Britain has a lot of soft power in Brazil with many of its citizens coming to UK to study and learn English.

“I would like to think there will be more engagement between the two countries, at least in certain areas,” he says.

It would also be a mistake for the UK to also overlook the potential of Africa, where 43 percent of Africans across the continent are soon to belong to the middle or upper classes.

Currently, the UK is able to use existing EU arrangements for its trade with many African countries, which are in many ways rooted in an old colonial past. However, this space is changing.

Dr Ikpe explains: “There is also the reality of increasing trade volumes with China alongside its heavy infrastructural investment in many parts of Africa. The EU has had to grapple with these and other changes in recent trade negotiations and the UK would do well to learn lessons from their negotiations to date.”

“In light of these new and emerging dynamics, the UK needs to build up a strong knowledge base on many parts of the continent, not least on larger and regionally dominant countries such as Nigeria,  South Africa and Kenya. An awareness of the dynamism and transitions within these contexts will better inform the UK’s trade negotiations with this significant part of the world.”

For all the academics, their message is clear – Britain cannot afford to wait for Brexit to be resolved before looking to emerging economics to form new relationships, build up knowledge and find areas of common ground on which to forge new trade agreements.

The evidence to-date is that is not happening to a sufficient level nor quickly enough, so those in the civil service and our politicians need to prioritise this in the coming months.

As Professor Brown explains: “All of this requires a major mindset change and it all needs to happen quickly.”