Imports are good too!

We are often (quite rightly), talking about Britain’s disappointing export performance. There are lots of good reasons to promote exports – an injection into the circular flow of income and the X in C+I+G+(X-M). But don’t fall for the trap of thinking that exports=good and imports=bad. In the final analysis, one of the main reasons for exports is to pay for imports. Imports play a crucial role in making our economy more efficient.

Late last year, the Chancellor set the bold target of doubling UK exports to £1 trillion by 2020. That equates to a growth in exporting of 9% a year for the next six years, which is looking unlikely.

According to HSBC’s Global Trade Forecast in The Telegraph (and Guardian) we’ll achieve export growth of about 4%. The pace will increase to 6% a year from 2015 to 2020, but still falls short of where the Government is setting its sights.

But don’t lose sight of the significance of imports in making this happen.

According to a report commissioned by HSBC, far from imports being the enemy of UK manufacturing, they are enabling smart UK businesses to increase productivity and compete in the global supply chain.

Over the past decade, British manufacturers – particularly in the automotive, pharmaceutical and machinery industries – have started to import more semi-finished parts, allowing them to focus on value added.

This means they are now making premium, finished products, which, in turn, are exported around the world to satisfy the demands of emerging markets and new consumers. It’s all about specialisation in the UK economy and the gains from trade that can grow from that process.

According to HSBC, this is a welcome sign that UK companies can adapt to defend and increase sales, identifying where they have a competitive advantage and focusing on it.

This should improve our productivity levels and boost our export potential. That’s a recurring supply side message: to retain an advantage in design and in quality, we must continue our tradition of innovation, which means investing in research and development and training to improve the skills of the UK workforce.