In 2015, the UK had a trade deficit of about £70 Billion with the EU. This is the amount more that EU countries get by exporting their goods to us, than we get by exporting to them.
We sold goods and services to other EU countries worth £220 Billion, while they sold about £290 Billion worth to us.
The trade deficit could be much higher than this figure because of the way the EU calculates their exports – taking EU’s own figures, their trade with us was as high as £360 billion, so they may be running a trade surplus as high as £140 Billion rather than £70 Billion.
All the major countries in Europe sell more to us than we sell to them. The league table of trade surpluses is headed by Germany (about £27 Billion) Spain (more than £10 Billion) France and Italy (both about £6 Billion) and Poland (about £4 Billion).
It is these trade surpluses – when totalled up – that have led Brexit supporters to say that, when it comes to trade, the EU needs us more than we need them, and that this dependence will be a strong card in negotiating any new trade deal.
Supporters of remaining in the EU counter this view by pointing out that if you take it country by country there is wide variation: Germany might be keen to protect its exports to us, but France and Italy have relatively small surpluses. The argument that “They need us more than we need them” only works if you view the EU as a single entity – as soon as you start talking to individual countries, the argument falls apart. This, in turn, could mean the EU taking a tough line with us over Brexit.
I have to admit that – as a Brexiteer – this point worried me for some time, until, that is, I realized that when it comes to trade, we won’t be negotiating country by country. One of the key aspects of EU membership is that all member countries have handed over their trade negotiating rights to the EU Commission in Brussels. The negotiating team will be under orders to do a trade deal with the UK that preserves the whole EU trade surplus – whether it’s £70 Billion or £140 Billion.
And you don’t have to look very hard to find the reason. The EU currently boasts that it is the world’s biggest economic bloc. This status is under threat from several directions.
Firstly, it will lose that status as soon as we leave in two years’ time, because it includes the UK’s economy – the world’s sixth largest.
The United States is already vying with the EU by some measures in any case, but will step into the number one slot once we leave – and the US is our biggest non-EU export partner.
In addition China’s economy – although subject to slowing at the present – is still growing, while the EU’s is shrinking, so China may be heading for the number two position .
So the EU is already likely to drop to number three. But things could get even worse.
According to the Office of National Statistics, in the two decades after the EU’s formation in 2003, its share of global GDP dropped from 30 per cent to 24 per cent in 2013, and is still falling.
This is not only because of the relative weakness of the EU but also because other world markets are growing faster – notably the BRICS countries, Brazil, Russia, India, China and South Africa.
Trade is moving away from Europe and towards the rest of the world. This includes the UK’s trade. The ONS says that although exports from the UK to the EU grew on average by 3.6 per cent from 1999 to 2014, this was below the 6.5 per cent rise in exports to countries outside the EU.
Right now, the EU’s chief Brexit negotiator, Michel Barnier, and his team are asking themselves the question: do they need us more than we need them? And the answer, Michel, is – you bet your sweet ass you do.