|
|
A recent International Monetary Fund (IMF) paper warned that after decades of increasing global economic integration, the world was now seeing global economic fragmentation. Following what it described as a “shallow and uneven recovery” from the global financial crisis, a series of global events and policy shifts have slowed or reversed economic integration. The events the IMF highlighted included the pandemic, Brexit and the invasion of Ukraine but they also noted a levelling-off in global trade flows since the financial crisis, the rise of US-China trade tensions and a growth in trade protectionism around the world.
According to the IMF’s analysis, the slowing or reversal of global economic integration has brought with it reductions in trade and economic activity which is likely to mean lower economic output.1 In short, global economic trends suggest that globalisation has plateaued or even declined and this – in the view of the IMF – will make us all poorer.
But while some would contest the views expressed in the IMF paper – it could also be argued that the current evidence of a slowdown in the world economy is the result of a various inter-related factors of which a decline in economic integration is only part – that report is just one of many indicators that the global economy (and with it world trade) is going through a period of upheaval, change and fragmentation.
The purpose of this paper is to look at UK trade policy in this period of undoubted change. There are particular trade risks for the UK. These include the fact that one of the clear trends is towards greater protectionism by the three big blocs (US, EU and China) and the UK is not in any of these blocs. The UK could be squeezed (for example) between the US and the EU in a developing subsidy war between them. This risks further disinvestment from the UK and a worsening tendency to fail to attract new investment on top of a period of declining foreign direct investment since 2016.
Trade is also changing. Trading in goods across borders where the barriers were (and often still are) import duties, import quotas and regulatory requirements still matters but the export of services has become as or even more important for many developed countries (including the UK) over the last 30 years. Digitisation now affects all trade (goods and services) and means further change in trade policy and practice and a degree of mismatch with traditional trade rules.
The adoption by many countries of sustainability policies and net zero targets are driving further significant changes in both trade policy and practice with impacts that are not yet fully realised or understood.
Before looking at UK trade policies in terms of threats and opportunities, the paper looks at the contemporary global economic background. It also mentions some important economic policy developments in the European Union which will have a wider impact, including on the UK.