In the News Teaching Activity – what is happening to the UK’s international trade? (Apr 2024)

As this year’s exam session approaches, the news often covers growth, unemployment and inflation, but neglects to tell us much about international trade. Post-Brexit, the Government has promoted an ‘Indo-Pacific tilt,’ joining the Comprehensive and Progressive Agreement for Trans Pacific Partnership (CPTPP) and making new bilateral agreements with Australia and New Zealand, but the geographical pull of trade with the EU remains.

The ONS has published its latest set of quarterly Balance of Payments data (for October-December 2023), the last before the exams. For 2023, the UK’s trade deficit was £33bn - the large deficit in goods trade is partially, but not fully, offset by a surplus in services, while the current account deficit was £89bn or 3.3% of GDP (up from 3.1% in 2022). Despite loosening ties with the EU, the UK’s neighbouring trading bloc is still a significant export market for the UK (41% of total) and an important source of imports (52%). The UK’s accession to the CPTPP in July 2023 needs final ratification, but the government hopes that it will give the UK better access to a more dynamic region, though it is perhaps more geopolitical than economic, given the government’s own impact assessment suggests it will only boost the UK’s GDP by 0.06% in the long run. With global geopolitical tensions running high, it is difficult to forecast with any degree of certainty how the UK’s pattern of trade could be affected by these changes.

Trade: Key Economic Indicators - House of Commons Library (parliament.uk)

1 Distinguish between the ‘trade deficit’ and the ‘current account deficit.’

2 Using economic theory, analyse the potential gains from increased trade for the UK and CPTPP members as generated by the new trade agreement.

3 Discuss the benefits and costs of running a current account deficit.