UK Trade in a Post-Brexit World

Looking for Love Outside the EU

The trade consequences of Brexit already include a dramatic shrinking of commerce with the European Union, an expansion of trade with other allies, redrawing of supply chains for companies, and the separate counting of foreign trade with Northern Ireland, according to an analysis of import and export statistics from Trade Data Monitor, the world’s top source of trade data.

Now that the UK is completely independent and outside the EU, it’s Brussels’ third largest trading partner, after only China and the U.S. But already that status is shrinking. In January, UK exports to the EU dropped 41% from the previous month to $11.3 billion. To be sure, the Covid-19 pandemic has thrown global trade out of whack, but still, Brexit is a huge challenge for trade: In 2020, seven of the UK’s top 10 trading partners were in the EU.

There are signs UK companies are seeking out buyers in other countries, but those markets pale in comparison to the EU, a bloc of around 450 million people. Exports to Australia increased 25% in January to $458.3 million. Exports to India rose 13% to $431.8 billion. And shipments to South Korea went up 15% to $352.6 million. The challenge for UK officials and business will be to grow those markets.

Brexit is a Historic Turning Point in Global Trade

The dismantling of the UK’s free trade zone with the European Union is a unique experiment in global economic history. Brexit is another sign of the end of the free-trade consensus that has governed international relations since World War Two. When Britain joined the European Union in 1973, freer trade was the union’s primary purpose. EU nations badly needed liberalized economies to rebuild and prosper. Now, a new global trade system is emerging that must take into account protectionist politics driven by regions and constituents that have suffered from free trade.

The New Deal With the EU: Non-Tariff Barriers

What’s replacing the UK’s customs union with 27 other EU countries isn’t nothing. The EU-UK Trade and Cooperation Agreement (TCA), a 1,246-page treaty, signed in December 2020 includes deals on a range of topics like fisheries, law enforcement, and rules of origin. Overall, tariffs will remain nonexistent or very low. Instead, the challenge for companies and the banks and institutions that finance their trade, are non-tariff barriers and the risk of emergency tariffs in the future. Over time, it’s possible that political conflict will trigger tariffs as retaliatory moves, forcing companies to adjust their supply chains. UK negotiators had a tough task. EU negotiators clearly had the upper hand in making the deal. The UK has accounted for only 15% of total EU exports outside the bloc, while over 40% of UK exports go to the EU.

The non-tariff barriers imposed by the EU include the high cost of registering chemicals, strict health and safety standards, and rules of origin which mean that the UK can’t just assemble parts made in China and count them as a UK export. The net effect will be to prompt companies setting up supply chains to avoid routing goods through the UK to avoid extra costs.

Free-Trade Deals, Anyone?

With Brexit, the UK isn’t just losing easy market access to the EU. It’s also dropping out of over 50 trade deals the EU has signed with third countries. The UK has been actively pursuing markets for its companies outside the EU, pursuing trade deals with the U.S., Australia and New Zealand. In October, 2020, it signed a free trade deal with Japan. In January, 2021, the government said it would apply to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or CPTPP, which includes Australia, Canada, Japan, and New Zealand.

The biggest market, of course, is the U.S., which is still the world’s biggest overall importer. In 2020, UK exports to the U.S. increased 13.4% to $6.2 billion. The biggest exports to the U.S. in 2020 were gas turbines and other industrial machinery ($992.1 million), organic chemicals ($960.4 million), and autos and auto parts ($838 million).

Although the UK’s trade deal with the US didn’t expire until Jan. 1, 2021, companies have been rearranging their supply chains to avoid risk and prepare for new arrangements. Total trade with Russia increased 56% to $27.2 billion; with Hong Kong up 63% to $25.3 billion; and with Canada, up 0.4% to $22.5 billion. And total trade with China shrank a mere 2.4% to $82.3 billion.

Getting High on Your Own Supply

One sector that expects to suffer from Brexit is large industrial enterprises with complex supply chains, such as automotive, petrochemicals, industrial alcohols and plastics. For example, Germany’s imports of cars and car parts from the UK fell 16% to $4.2 billion in 2020. Shipments of organic chemicals declined 29% to $1.3 billion.

The issue is especially acute for companies whose supply chains span a tight network of North Sea ports and industrial hubs that include the ports of Antwerp and Rotterdam, and the Rhine/Ruhr area in Germany. The establishment of a globally powerful petrochemical hub harnessing North Sea oil, starring companies like BASF, Ineos and Solvay, is one of the great industrial victories of European integration in the past decades. And it’s what’s now been put at risk by Brexit.

The issue for companies reconsidering their supply chains is the cost of registering chemical products with European authorities. Under so-called REACH regulations, companies must register any chemical sold into EU. Once Britain leaves, companies will have to establish production in the EU or have their importer register the chemical. At the same time, anything made in the UK for shipment to Europe would have to be registered with British authorities. Registering a chemical typically costs over 50,000 euros a year. If sales are below that, it might not be worth making or selling in the UK, forcing costs up for British buyers.

Northern Ireland’s Trade Surplus with the EU

Finally, the UK government decided to leave Northern Ireland in the customs union in order to avoid a hard border in Ireland that might resurrect tension on the island. In the first months of 2021, Northern Ireland exported $606.6 million of goods to the EU, including autos and auto parts ($73.2 million), electronics ($41.1 million), and beverages and spirits ($34.6 million).

In return, Northern Ireland purchased $507.2 million of goods from the EU, giving this odd duck of a territory a nifty, and surprising, $99.4 million trade surplus with Brussels.

Exports to U.S., EU Drive China Export Comeback

The global economy appears ready for a strong rebound from the Covid-19 pandemic. Shipments from China, the world’s top exporter, increased a whopping 60.6% year-on-year to $468.9 billion over the first two months of 2021, according to Trade Data Monitor, the world’s premier source of trade numbers.

China’s strong bounce-back cements its path toward owning the world’s largest gross domestic product before 2030, and confirms the emergence of a 21st century economy dominated by three large blocs: China, and its two trop trading partners, the U.S. and the European Union.

In the first two months of 2021, Chinese exports to the U.S. totaled $80.5 billion, up 87.3% year-on-year, and those to the EU rose 62.6% to $73.7 billion. By comparison, exports to all of Latin America totaled $31.2 billion; to Japan, $25.2 billion; to all of Africa, $20.7 billion; and to India, $14.2 billion.

China was the first country to shut down because of Covid-19, but also, by far, the first to reopen. For the year , China registered 2.3% GDP growth, making it the only major economy to expand in 2020.

The Covid-19 pandemic and its reshaping the global economy as a work-from-home world with rising demands in communications technology has confirmed that the U.S. and EU are still the world’s richest markets-- 800 million consumers hungry for all the good China-based factories are pumping out, from computers and phones to shoes and toys, and able to pay for them.

China’s export numbers in the first two months of 2021 were roughly twice the jump expected by economists, and up from a 18.1% year-on-year increased in December. Imports leapt 22.2% to $365.6 billion, over a 6.5% increase in December. The first two months of the year are combined by Beijing in order to compensate for distortions caused by the Chinese Lunar New Year falling at different times in January or February. Businesses including factories close for as many as two weeks during that time.

Some forecasters have predicted a fall-off in Chinese exports as demand drops for masks and other Covid-related medical gear, and because the U.S. still has a raft of tariffs against Chinese imports in place. But the truth is that China’s manufacturing prowess has grown to the point where those are just drops in the bucket. The country is still the world’s factory.

If anything, the uncertainty created by Covid-19 has locked in supply chains, and caused buyers to rely even more heavily on China. And despite recent increases, China’s labor costs are still only a quarter of those in the U.S., according to the World Bank.

Some of the products with the sharpest increases are ordinary consumer goods. Exports of toys, for example, increased 96.8% to $5 billion; lighting fittings and parts rose 122.1% to $7.8 billion; and home electrical appliances were up 93.7% to $14.6 billion. By comparison, exports of medical devices amounted to only $2.8 billion, up 75.3%.

Exports of products needed to work from home have been increasing the last 12 months. The big reason for the eye-popping increase to start the year is that now other goods are rebounding, too. Exports of motor vehicles and chassis, for example, increased 106.8% to $4.2 billion. Shipments of footwear, which had been in decline, rose 32.8% to $7.5 billion.

For trading partners, the battle is still, as ever, to obtain markets within China. Thanks in part to new agreements which guaranteed purchases of soybeans and other products, China increased its imports from the U.S. 66.4% to $29.3 billion. Those from the EU rose 32. 5% to $45.9 billion. But both the U.S. and EU will have a difficult time competing against China’s geographic neighbors: China imports from ASEAN countries were higher than either, totaling $53.1 billion, up 29.9%.

Where the U.S. and EU still have an edge is in shipping high-value high-tech and industrial goods, as well as some essential bulk commodities. Chinese imports of high-tech products increased 35.1% to $113.8 billion; of auto parts, 47.8% to $6.7 billion; and of soybeans, 14.6% to $6.3 billion.

On Friday, Premier Li Keqiang said China expected to target a GDP growth of 6% or higher in 2021. And, it was recently reported, shipping lines have been ordering more vessels to handle an expected 2021 increase in demand.

China Leads Global Trade in Lithium-Ion Batteries

The age of the lithium-ion battery has arrived, and it’s Asia, especially China, that is dominating burgeoning global trade.

In the first 10 months of 2020, China exported $12.5 billion of lithium-ion batteries, followed by South Korea ($4 billion), Poland ($3.2 billion), and Germany ($2.7 billion), according to Trade Data Monitor. As a recent story in the Wall Street Journal points out, that’s more control over the market that anything in the crude oil industry, where even the world’s top producers – the U.S., Saudi Arabia and Russia – all generate less than 20% of global production.

Only invented in the second half of the 20th century and later pioneered for mass production in laptops and camcorders, lithium-ion batteries are the linchpin of a booming new trade in electric vehicles.

Governments around the world, concerned about climate change caused by carbon emissions, are pushing massive private investment in electric-powered cars. The new administration of President Joe Biden has promised policies that encourage Americans to buy electric vehicles. Beijing has ordered that 40% of cars in China be electric by 2030. General Motors, the giant U.S. automaker, has pledged to invent dozens of new electric vehicles, and only make EVs by 2035. It wants to catch up to companies like Tesla, the U.S.-based global leader, and Germany’s Volkswagen. Although EVs make up less than 5% of all cars on the road, it’s clear that Tesla Model S, Chevy Volt, and Toyota Prius Prime are the future of the industry.

The biggest import market for electric vehicles is Europe, where use is encouraged by high gasoline taxes and incentives. The world’s top electric car importers are the Netherlands ($3.6 billion), Germany ($3.1 billion), Belgium ($2.8 billion), the UK ($2.3 billion), and Norway ($2.3 billion). (That’s why the latter, the smallest on the list by population, was the subject of General Motors’ Super Bowl ad starring Will Ferrell.) However, the biggest overall market, including imports and domestic production, is China, where Volkswagen, BMW, Toyota, Honda and other world-class carmakers have all built plants to make electric vehicles.

China has been ramping up its battery capacity, thanks in large part to Contemporary Amperex Technology Ltd, or CATL. Rivals include Japan’s Panasonic, and South Korea’s Samsung SDI and LG Chem. Tesla manufactures batteries at a plant in the Nevada desert it operates with Panasonic.

China’s top customers for lithium-ion batteries were the U.S. ($2 billion), Hong Kong ($1.5 billion), Germany ($1.2 billion), and South Korea ($1.1 billion). And the world’s top exporters of electric cars are Germany ($6.2 billion in the first 10 months of 2020), the U.S. ($4.9 billion), Belgium, ($4.8 billion), and South Korea ($3.2 billion).

To be sure, it’s not just cars and trucks. Power plants are also using battery technology. They’re used to store excess power and then redistribute it when there are spikes in demand. The technology is elementary: Lithium ions are transferred via a liquid from cathode to anode and back to cathode. But recent innovations have brought down production costs closer to those of petroleum-powered engines. The price different between an electric engine and fossil-fuel engine is expected to decline to zero in the next five years, and by 2030, as many as one-third of cars on the roads are expected to be electric.

The strong demand has greased a supply chain of battery ingredients, including lithium, cobalt and manganese. In order for mass production of electric vehicles to be commercially viable, raw material supplies have to remain constant and affordable. Australia, Chile and China are the world’s top producers of lithium. A bigger problem is cobalt, in which the Democratic Republic of Congo, a war-torn country, dominates production and trade.

The $20.9 Billion Covid-19 Vaccine Economy

New Covid-19 vaccines have funded new research, fueled sprawling supply chains, and boosted demand for yeasts and other key ingredients, according to an analysis by Trade Data Monitor, the world’s top source of trade statistics.

Total shipments of “immunological products” are expected to increase 18.5% to $134 billion in 2020 from $113.1 billion in 2019, a $20.9 billion increase, according to TDM. That’s close to an estimate by the Gates Foundation in April 2020 that making and distributing the vaccine would cost up to $25 billion.

That’s a small price to pay for the damage that Covid-19 could cause unchecked. It’s been a year since the pandemic started sweeping the globe, infecting almost 100 million, killing two million, and destroying trillions in economic value. Global trade is expected to fall around 10% in 2020, according to the World Trade Organization.

Almost immediately, governments and companies sped up their usual vaccine development clock, usually at least four years. By mid-December, over 50 vaccines were in production, stimulated by billions of dollars in government investment. Six vaccines have now been approved by regulators.

The world’s pharmaceutical industry which led the charge is still headquartered in Europe, although Asia is catching up. The world’s top exporter of immunological products was Switzerland. Its exports of immunological products increased 13.4% to $28.6 billion in the first 10 months of 2020. Germany finished second, with exports up 7.8% to $18.51 billion, followed by Ireland, with exports up 16.9% to $18.5 billion.

China, epicenter of the pandemic, ranked tenth in exports, but registered by far the most dramatic increase of any major exporter. Its exports of immunological products leapt 1,185% to $2.3 billion in the first 11 months of 2020, up from $176.6 million over the same period in 2019. Its biggest markets were the UK ($366M), U.S. ($326.1M), and Germany ($230.6M).

Overall, China’s pharmaceutical industry boosted exports 34.1% to $11.2 billion over the first 11 months. Shipments to the U.S. rose 32.4% to $2.2 billion. There’s still plenty of room for growth. So far, authorities have okayed six vaccines so far for use by the public: two so-called RNA vaccines by Moderna and Pfizer-BioNtech; two conventional vaccines by Sinopharm and Sinovac; and two viral vaccines by the Gamaleva Research Institute and a joint venture between Oxford and AstraZeneca.)

Pfizer, Moderna, and AstraZeneca are expected to make over five billion doses in 2021, enough to vaccinate three billion people, according to analysts.

The U.S. was by far the biggest buyer of immunological products in 2020, importing $23.5 billion in the first 10 months, up 33.5% from the same period the previous year. The U.S. was followed by Germany, Belgium, Japan, and China. The latter imported $6.2 billion in the first 11 months, up 6.5% from the same period in 2019.

The list of ingredients needed to make and administer vaccines is long, including syringes, vials, and synthetic rubbers such as latex, and large-scale doses of chemical components such as yeasts, proteins, and gelatin.

Here China’s vast manufacturing centers played a more important role than in the production of the final product.

China was the world’s number one exporter of yeasts, ramping up shipments 12.3% year-on-year to $309.8 million in the first 11 months of 2020. China was the world’s third-ranked exporter of gelatin, shipping out $175.6 million in the first 11 months of 2020, up 28% year-on-year.

And it was the top exporter of syringes, at 14.2 billion units over the first 11 months of 2020, up 6.7% from the same period in 2019. They were sold at a discount: By value, exports fell 8.4% to $693.2 million.

Global Trade in 2020 Rebounded After Spring Slump

China’s full-year numbers show how global trade was almost crippled by the Covid-19 pandemic during the first quarter of 2020, but recovered in large part thanks to Chinese exports, according to an analysis by Trade Data Monitor, the world’s top source of trade statistics.

In the first quarter of 2020, as China’s economy contracted 6.8%, exports fell 13.4% year-on-year to $477.9 billion. By comparison, U.S. exports declined only 3% in the first quarter, to $395.7 billion.

By the end of the year, however, China’s exports had risen 3.6% to a record $2.6 trillion while U.S. exports declined 13.9% to $1.3 trillion in the first 11 months of the year. For the year, China clocked a trade surplus of $535 billion, its highest figure since 2016.

China successfully contained the Covid-19 virus effectively and got its factories and ports running again. Thanks in large part to this strong performance, global trade is now expected to decline around 10%, compared to the 20% decline that was expected in the spring.

In 2020, “China was the only one major economy in the world that has reached a positive growth in goods trade, the status of [China as] the largest goods trading nation [in the world] has been further consolidated,” said China customs spokesman Li Kuiwen, according to the South China Morning Post. For the year, China’s economy is now expected to grow around 2%, making it the only rich economy to record positive economic growth in 2020.

In December, for the seventh straight month, China registered strong trade growth. Exports increased 18.1% year-on-year to $281.9 billion. China’s trade surplus with the rest of the world increased to $78.2 billion in December, its highest ever, beating its previous record of $75.4 billion in November.

In 2020, China’s biggest market was again the U.S. Exports rose 7.9% to $451.8 billion while imports increased 9.8% to $134.9 billion, increasing the trade surplus with the U.S. to $316.9 billion. Shipments to the European Union increased 6.7% to $391 billion, while imports rose 2.3% to $258.6 billion. Exports to Latin America, India and Japan, however, all declined.

As China faced tariff barriers in the U.S. and higher wage costs, supply chains have moved elsewhere in Asia. Exports to Vietnam rose 16.3% to $113.8 billion.

Thanks to its prowess in manufacturing and Western consumers’ shifting of work to home from office, China ramped up exports of computers, phone, routers and data storage units. Exports of high-tech goods increased 6.3% to $776.7 billion. However, exports of products people use to move around all declined dramatically. Exports of bags and containers fell 24.2% to $20.6 billion, garments dropped 6.4% to $137.4 billion, and footwear shipments fell 21.2% to $35.4 billion.

In the U.S. and Europe, hospitals, pharmaceutical companies and public health officials are buying medical equipment they need, such as ventilators, face masks, and now many key ingredients for mass-produced vaccines, from China. Exports of medical devices increased 40.5% to $18.1 billion.

China’s importance as an import market continued to grow. It ramped up imports of meat 59.6% to $30.7 billion, partly because of swine flu and other domestic supply problems. It increased imports of cosmetics 29.4% to $20.2 billion, a reflection of its booming middle class. Imports of petroleum, coal and natural gas all fell by double-digits as commodity prices declined, industrial activity slowed, and people drove less because of the pandemic.

It’s unclear how long China can sustain this robust growth in exports. As countries roll out vaccines, they are bound to slow import of medical supplies. Markets for laptops and other electronics will saturate. But as the world seeks to recover from the devastation of the Covid-19 pandemic, trade data suggests it’s more dependent than ever on the Chinese export engine.