It’s not Covid that’s damaging British trade. It’s Brexit

B rexit is beginning to take its toll. Trade with the EU is suffering and foreign investment is heading south. Neither trend is temporary and both harm the government’s stated aim of “levelling up” regions that until now have depended on overseas trade to create well-paid jobs.

It’s not clear if the red wall has noticed. Or anyone among the 17.4 million people who voted for Brexit. So far, all the in-depth polling shows there is little movement on the vexed question of EU membership.

Those who called for a people’s vote to overturn the referendum still want to be inside the union. On the other hand, Brexiters remain largely convinced that independence from EU courts and control of Britain’s borders is worth whatever short-term damage is caused by vacating our seat in Brussels.

For a while it wasn’t clear how much the pandemic was complicating the picture. Those who campaigned for Britain to quit the single market and customs union were able to hide behind broader figures that showed global trade taking a hit – and, since January, when the transition period came to an end, how the second and third waves of the virus had distorted most exporting countries’ trading patterns.

That isn’t true any more. There are just too many independent reports examining the UK’s trade figures that are reaching the same conclusion: Brexit is bad for exporters. And not just today and tomorrow, but for a very long time.

At first glance, analysis of the most recent data suggests the impact of Brexit was relatively small. In May, the UK registered a trade surplus for the first time since June 2020, and goods exports to the EU were nearly back to pre-Covid levels.

But closer inspection by the consultancy Pantheon Macroeconomics found that “the damage is more apparent, and Brexit appears to be preventing the UK from benefiting fully from the global upswing in trade”. As a percentage of total EU imports, the ONS’s measure of the UK share is below its 2019 average level. “In other words, UK exporters have lost market share,” says Pantheon.

The products most sensitive to the new trade barriers, such as food and chemicals, have fared particularly badly, it says. More importantly, service-sector exports were still 18% below their pre-Covid level in May, with exports to the EU in particular dragging on the overall figures.

Businesses in the north-east are already nursing their wounds, as the local chamber of commerce pointed out last week in an open letter to Boris Johnson. A survey in May of its “internationally trading members” found 75% reported their finances being hit by Brexit-related red tape while 37.5% said their UK-EU trade volumes had suffered.

James Ramsbotham, the chamber of commerce’s chief executive, said Johnson needed to understand that Britain’s “newfound power to diverge from European standards may come at a cost” and that it would be borne most heavily by the north-east, which is “the most reliant region on European trade”.

William Bain, head of trade policy at the British Chambers of Commerce, has put together a chart of 1,400 barriers to trade with the EU that he says will make life difficult even for the most dedicated and entrepreneurial exporter.

Each EU country is allowed to impose its own rules on foreign companies in addition to those set by Brussels. There are licences to apply for, bans on buying property and applications for costly visas. These are all commonplace obstacles UK workers and businesses must overcome to work and provide services in a member state.

If these tales of struggling exporters don’t convince sceptics, there are the regular updates from consultancy EY on the level of business investment into the UK from abroad.

Some investments by foreign businesses have remained steady or grown. For instance, food manufacturing has dined on foreign money, going from 35 foreign-funded projects in 2015 to 64 in 2020, and our passion for internet shopping and deliveries means foreign-funded logistics projects have grown from 71 to 94 in that period.

However, while the UK had almost 13% of all European foreign direct investment (FDI) in manufacturing in 2015, that is now down to just over 8%, and investments in automotive and transport fell from 83 to 40 projects in the same five years to 2020. These investments once put the UK at the heart of a European factory network. No longer.

When exports account for 30% of Britain’s GDP and UK-based exporters are struggling to make headway in a world where trade is now booming, it bodes ill for the nation’s economic health over the next year and many more to come.