The UK’s Main Political Parties Both Need to Talk About EU Trade



Professor Michael Gasiorek | Chatham House

Although the Conservative and Labour parties are both making a policy promise a day ahead of the 4 July general election, none of these proposed policies is addressing the UK’s international trade. This is leaving many important and cross-cutting aspects of trade untouched. Both parties’ reluctance to talk about trade with the EU may well explain the general lack of focus on this area.

With barely two weeks until polling day, it is worth exploring why the incumbent Conservatives and their main challenger Labour are both avoiding the topic of trade relations with the EU – and other key areas in international trade that deserve the next government’s attention.

The post-Brexit economy and UK–EU trade

While the UK may have notionally ‘taken back control’ over policy areas such as trade and migration, as campaigners for Brexit insisted it would, empirical evidence suggests that leaving the European Union has negatively affected the UK economy. Slower GDP growth and slower growth in trade than comparable economies are key indicators of this.

The UK is a very open economy and the value of trade relative to GDP is close to 70 per cent. More than one-fifth of UK jobs are directly or indirectly associated with the exporting activities of UK firms. Average wages tend to be higher in exporting sectors and importing offers the country access to a greater range and quality of consumer goods and intermediate inputs. All these factors are important drivers of prices, of UK firms’ competitiveness, and of future investment and economic growth in the country.

Approximately 50 per cent of UK trade is with the EU, and many UK firms’ supply chains are closely linked to the EU. Hence, it is hard to discuss international trade (policy) without mentioning EU trade (Brexit). As such, it is clear to see why parties struggle to discuss international trade without talking about the UK’s trade and trade relations with the EU.

The parties’ recently published manifestos do offer some main approaches to international trade. Broadly speaking the Conservatives seek a continued focus on free trade agreements as well as ‘freeports’. They plan to establish a UK-wide body called InterTrade to promote more internal trade, and they reject any closer relationships with the EU.

Labour seeks improved relations with the EU but is ruling out re-joining the customs union, the European Single Market, and the free movement of labour. It proposes a more judicious approach to free trade agreements, and has committed to publishing a trade strategy.

But both manifestos lack detailed policy on trade. Similarly, their many daily policy announcements (roughly 48 to date) neglect to mention international trade, particularly with the EU. So why aren’t the two main parties talking about trade with the EU?

Don’t mention the EU

It is pretty clear why the Conservatives don’t want to talk about the EU. Brexit, which they championed, has offered few economic advantages, nor have migration levels come down. The government has failed to organize itself to take advantage of sovereignty effectively. Almost all types of firms (especially SMEs) are critical of Brexit, and opinion polls suggest that a majority of the population now regrets it.

Within the Conservative party, the party leadership faces pressure from its Eurosceptic right wing over migration levels and many MPs are strongly against closer alignment with the EU. They are now getting very nervous about rising support for the populist Reform party.

Labour is involved in its own balancing act over the EU. It does not want to appear to override or disparage the electorate’s decision in the 2016 referendum on leaving the EU. Nor does it want to stir up the passions and antagonisms surrounding Brexit.

Closer integration with the EU will come with closer alignment to EU rules and regulations. Such a stance for Labour risks being portrayed as being ‘anti-Brexit’; it fears the (over-)reaction of the UK’s right-leaning press to any suggestion of surrendering sovereignty to the EU.

Labour also recognizes that any Brexit-related promises that involve negotiation with the EU will be hard to deliver, given the EU’s lack of trust in the UK. Added to this, some pro-Brexit sentiment still exists in the Labour Party.

What the parties’ trade policies should consider

Policy detail in the manifestos is lacking on trade as it relates to climate, on other types of agreements beyond free trade agreements (FTAs), and on services trade. The climate crisis is the biggest crisis the world faces, and trade policy is an important part of the toolkit needed to address it. The Conservative manifesto contains no discussion on this, while Labour has only a brief statement in support for a carbon border adjustment mechanism.

Too much discussion of trade policies focuses on FTAs. While FTAs are important, the scope of trade policy is much broader – ranging from bilateral agreements on specific issues such as mutual recognition, to digital agreements, critical minerals partnerships, technology cooperation, as well as multilateral cooperation in the World Trade Organization.

On services trade, each of the manifestos only manage a scant one or two mentions despite the fact that the UK is predominantly a services economy, and services account for around half of UK exports.

Strong arguments have been made in the past in favour of creating an independent Board of Trade. Such a body would contribute to more coherent and consistent trade policy in the UK and would provide independent analysis and assessment. In previous speeches, Labour supported this proposal but it is not in their manifesto. Should Labour get elected, it is to be hoped the proposal will be considered.

Over the course of the next parliament, public pressure for closer alignment to the EU may well grow – which may involve the government considering re-joining the European Single Market. As the pains of the Brexit political traumas diminish, the UK’s trade with the EU is likely to rise up the political agenda. Whoever wins the election, more open discussion of international trade is going to be important to the UK’s future economic success.

To read the expert comment as it was published by Chatham House, click here.