The second major global trend shaping the UK’s trade environment has been the economic rise of Asia generally and China in particular. In 1999, prior to China’s accession to the WTO, China accounted for just 0.8% of UK exports and 1.6% of UK imports. The rapid rise of a mercantilist China as a global trading power means that the PRC now accounts for about 7% of UK imports and 3.5% of UK exports. Asia in total accounts for about 20% of UK trade.

While the UK’s future economic relationship with China is intrinsically bound up with security and geopolitical issues, the rest of Asia still proffers a tremendous trading opportunity, particularly if the newly industrialized and emerging Asian countries begin to diversify away from China and abandon their neo-mercantilist approach to trade. In contrast to the 9% share in global import growth of the Eurozone in the decade through to 2018, East Asia and the Pacific has accounted for 50% of the total growth, split roughly 50:50 between China and the rest. In addition, South Asia and the Arab world has accounted for about another 11%.

The UK has moved from being a net exporter to a net importer of energy

Finally, the UK’s trade pattern has been heavily impacted by the deterioration in North Sea oil production which has turned the UK from a net exporter of oil and petroleum products to a net importer. Having spent most of the period from 1980 onwards as a net exporter of energy, the UK turned a net importer in 2004. Since then, energy dependence has risen and imports now account for about one-third of primary energy supply.

This resulted in an energy trade deficit of GBP18 bn in 2017 or about 0.7% of GDP being almost entirely composed of imports of oil and gas. The UK is a relatively efficient user of energy (2.8 tons of Oil Equivalent per capita versus the US at 6.8 tons, for example) and therefore security of supply will have to come from diversification of source, geopolitical considerations and in the medium term an increasing proportion of domestically sourced renewable energy. In the UK there is a confluence of interest between the green agenda, national security concerns, trade and industrial policy when it comes to energy policy.

The UK has run persistent trade deficits in recent decades

If the above factors have been the major drivers of trade patterns in the UK, what has the result been? The UK has been a perennial current account deficit country running a deficit in every year since 1985 despite being an energy net exporter through till 2004. The trade balance in goods and services has been positive in just 18 out of the last 62 years and most of those years were pre-1985. The UK recorded a very modest trade surplus in the three-year period 1995-1997.

Very substantial goods deficits have been somewhat offset by large services surpluses

Underlying the consistent deficits, however, has been a bifurcation of performance between trade in goods on the one hand, and trade in services on the other. Since the early 1980s the UK’s trade in goods has been consistently in deficit while the services sector has been producing consistent and growing surpluses – albeit not large enough to pay for the goods deficit. These imbalances are among the largest in the world. For example, the UK’s deficit in goods trade in 2017 and 2019 averaged in excess of 6.5% of GDP, while the surpluses in services were over 5% of GDP.

Although goods exports as a percentage of GDP are well off their high of 20% reached in 1977, they still stand at 16% of GDP, roughly in line with their long run average. The decline in the UK trade position in goods has therefore more to do with the increased imports of goods as a percentage of GDP, than a decline in goods exports. Service exports as a percentage of GDP have risen from about 5% in the late 1980s to 14% of GDP in 2018 making them almost the same size as goods exports.

There has been a stark difference between the balance of trade with the EU and the balance with the rest of the World

If there is a stark contrast between the trade performance of the UK in goods versus services, there is an equally stark contrast between the balance of UK trade with the European Union and with the rest of the world. UK trade with the rest of the world has oscillated between surplus and deficit regularly in a cyclical fashion with the current position being a sizable but not outrageous surplus. In contrast, the UK has run consistent, very sizable and growing deficits with the EU. These have grown dramatically since the turn of the century.