British exporters need the UK to sign more trade deals if they are to trade their way back to profitability following the double whammy of Brexit and the Covid-19 pandemic, according to new data from HSBC.
In a recent survey of 1,000 UK businesses, conducted by polling firm YouGov in January for HSBC UK, 62% say that free trade agreements will be important to growing profits in the future, while just over a third say that they would want a trade deal to be in place before they would consider a new overseas market.
“The end of the transition period coupled with the third national lockdown has presented a challenging start to the year for businesses who are desperate to start executing strategies to recover,” says Ian Tandy, head of international trade for HSBC UK. “The message from businesses is that government needs to continue to deliver trade deals with new markets to help firms reach their growth targets through 2021 and beyond.”
The UK is yet to replace all of the free trade deals it was an automatic party to via its membership of the EU. While the deal it signed with Japan was lauded by British businesses for going beyond the existing EU-Japan FTA, several of the UK’s other rollover deals, such as with Canada and Mexico, are yet to come into effect. Meanwhile, the EU-UK Trade and Cooperation Agreement (TCA), with its complex rules of origin requirements, is a far cry from the frictionless cross-Channel trade the UK previously enjoyed.
As a result, 40% of importers and 42% of exporters surveyed by HSBC report negative impacts since the end of Brexit transition period. More than a quarter (26%) of those impacted noted increased time spent on administrative tasks and paperwork, while 15% have experienced delays in receiving goods from suppliers.
Anecdotal evidence seems to indicate that some UK firms are abandoning trade with the EU altogether. A recent letter from the Road Haulage Association (RHA) to Cabinet Office minister Michael Gove, reported by The Observer, suggests that the volume of goods exports passing through UK ports to the EU in January declined by 68% versus the same month last year as a result of some British companies halting exports to the bloc.
In the absence of any further new trade deals – US-UK talks seem to be on ice as the Biden administration spends its first 100 days focusing on getting the pandemic under control – finding replacement markets won’t be easy.
This is illustrated by a study from the US-UK trade association British American Business (BAB) and the UK Department for International Trade (DIT) released last month. Titled Making a Difference, it examined the challenges faced by British businesses when trying to break into the US market – which is seen by many exporters as the most obvious place to turn post-Brexit.
Currently, only 13% of the UK’s 230,000 exporting SMEs sell goods and services to the US, and often have to navigate complex regulations and expensive tariffs in order to do so. One example highlighted in the report is that of Stoke-on-Trent-based ceramics manufacturer Steelite International, which currently faces 25.5% tariffs on its US exports, despite facing little domestic competition in the US.
Until a trade deal is signed, boosting the proportion of UK exporters who can access the vast US market will require solid government support. However, although October saw the DIT launch a £38mn internationalisation fund for SMEs in England to help 7,600 businesses grow their overseas trading, and UK Export Finance, the country’s export credit agency, has expanded its representation across key emerging markets in an attempt to create new opportunities for British exporters, a recent inquiry by the Public Accounts Committee, a select group of cross-party MPs tasked with examining the value for money of government programmes, found that there were “major failures” in the process.
Despite all of these challenges, however, the UK’s exporters remain optimistic about their prospects, according to the HSBC research, which shows nearly half (46%) of the firms surveyed expect to grow in the next 12 months, versus just under a quarter (23%) who think their business will shrink.
