A slump in trade with the EU should spur ministers to negotiate a fundamental rewrite of post-Brexit rules to more closely align the UK with Brussels, a leading left-of-centre thinktank has said.
Donald Trump’s arrival in the White House next week should also encourage the government to get on the front foot in trade agreement talks with the US to support the growth of UK exports, said the Institute for Public Policy Research (IPPR).
In a report revealing the full extent of the decline in Britain’s trading position that has been inherited by the Labour government, the IPPR said ministers needed to consider a wide range of measures to give industries – including energy, defence, food, communications, healthcare and pharmaceuticals – a better chance of selling products and services overseas.
The report said UK trade policy had been “muddled” and “rudderless” since the 2016 Brexit vote, adding that since leaving the EU single market and customs union in 2021, efforts to strike mini-deals with non-EU countries had run their course.
Estimates suggest that compared with staying inside Europe’s free trade zone, UK goods exports to the EU between 2021 and 2023 were down by 27% while EU goods imports to the UK were down by 32%, the report said.
Meanwhile, other G7 countries including the US, Japan, France and Italy enjoyed a boom in trade. The UK experienced a 10% decline in total goods trade from 2019 to the end of 2023. Figures from 2019 to the end of the third quarter of 2023 show other G7 countries saw an average 5% increase.
Trump’s inauguration next week could usher in a series of restrictive policies by Washington that prove to be a turning point in global trade policy. The incoming US president has said he wants to increase the cost to US consumers of imported goods that he alleges benefit from subsidies. China is his main target, but businesses based in the EU and UK could also be caught by tariffs charged by US customs and passed on to consumers.
Among the policy changes, the IPPR recommends lower UK tariffs on imports that support reaching net zero targets, while also seeking to cut tariffs in agreements with major trading partners including India and the US. “Even a mini-deal with the US could be beneficial and allow the UK to avoid Trump’s new tariff regime,” said the report’s author, Marley Morris.
To mitigate the fallout from Brexit, ministers should look to negotiate a veterinary agreement with the EU to reduce checks on food crossing the Channel. According to a recent study, this could increase UK agri-food exports to the EU by up to 22.5%, the report said.
Ministers should also seek a mutual recognition agreement (MRA) with the EU to show that goods made in the UK conform with standards set in Brussels. They should also attempt to link the UK and EU systems for emissions trading to avoid the EU’s incoming carbon border adjustment mechanism, which charges importers a levy that reflects the carbon intensity of certain goods.
Morris, an associate director at IPPR, said: “With Donald Trump’s inauguration just days away and the government intent on a ‘reset’ with the EU, the time is ripe for a new UK trade strategy.
“The challenges are stark: declining goods exports, damaging barriers with the EU, and a turbulent global economic landscape. But a new strategy should help develop a new programme of export support, rebuild UK-EU trade relations, and modernise our approach to trade agreements.”
