Myths and the Enlightenment

 An excellent issue of Briefings for Britain this week with two excellent articles. The tireless C McBride discusses a series of 'myths' about Brexit, often originating in the Office for Budget Responsiblity (OBR) who seem dedicated to releasing statistics showing that Brexit has produced serious costs.

McBride had already produced a post questioning the common view, initiated by the OBR that Brexit had cost the UK economy 4% of growth. This is a very commonly repeated statement.The BBC faithfully reproduced it a few days ago, during their Election coverage, after saying that no-one is talking about Brexit during the Election They want us to blame Farage and not vote Reform, of course. They reproduced in large scale font the OBR forecast that Brexit would lead to a 4% diminution of growth (and the presenter just about added the caveat 'in the long term' in the original statement). As we all know, we are all dead in the long term.

There is a revised statement by the OBR says McBride: Brexit ‘will reduce long-run productivity by 4% relative to remaining in the EU’.As she points out this actually depends on who we compare the UK with in the EU. As this blog notes, previous comparisons have involved comparisons with the economy of the USA!   Otherwise, we are involved in the tricky business of projecting from past trends.

 Mcbride supplies a plausible (not perfect) concrete comparator -- France -- with a similar GDP: 'France remained in the EU and their GDP is [still] little different from the UK’s.' Both France and the UK have fallen behind their growth rates before the Referendum -- so something else might be better able to explain the relative decline in growth (and we have candidates ranging from Covid to the effects of the 2008 Bank crash, of course).

That post also takes on several other assumptions made in OBR predictions. One prediction in particular is the subject of a separate post.  In this one, the OBR produces scary graphs showing an apparent fall in 'trade intensity' for the UK compared to other G7 countries.

The first weasel is to make this a graph of trade intensity, not actual volumes of trade. Intensity is a technical measure of the proportion of GDP made up by trade. As McBride says:

if a country’s trade remained unchanged, its trade intensity could increase if its GDP fell and decrease if its GDP rose. In this case, Trade Intensity would be a contrary indicator of economic performance and tell you nothing about changes in a country’s trade.

Actual trade intensity not indexed shows the UK in the middle of the G7 countries.

The OBR measured not even actual trade intensity but indexed trade intensity, indexed to 2019. Then the other G7 countries are not rendered as individual lines on a graph but collected together as a curious shaded shape. McBride says this does not show volatility -- that Japan was at the bottom of the shape in 2019 and at the top in 2022

It is not clear what the OBR measured as 'trade' anyway -- just goods? Their revised graph for 2023 shows a different picture -- different measurement?

The BBC faithfully reproduced one of the more egregious sleights of hand in its discussion of the Election coverage,saying that no-one is talking about Brexit. They want us to blame Farage and not vote Reform, of course. They reproduced in large font the OBR forecast that Brexit would lead to a 4% diminution of growth (and the persenter just about added the caveat 'in the long term' while the graphic dominated in the background

The same item also sagely reminded us that Brexit was still an issue because all the plans announced by the parties for growth still depended on our relationship with the EU. This is a taken-for granted reference for the argument that trade with the EU has been damaged by Brexit?

Briefings for Britain is on that case too. The invaluable C McBride has a post denying the myth that Britain has 'walked away' from its 'largest trading partner', pointing out that we have a very favourable tariff-free trade deal with the EU: 'the only EU trade deal that does this.'. Her data shows no relative decline in exports or imports: 'UK goods exports to both EU and non-EU countries have moved in tandem...Nor have UK goods imports from the EU fallen due to Brexit.'.

There is an earlier apparent change because of definitional changes, however:

clothing and footwear must be wholly manufactured in the UK or the EU, to be counted as UK or EU goods although the materials can be imported. This caused UK exports of clothing to the EU to fall by 60% and footwear to fall by 70% after Brexit, as many of the UK’s high-street fashion brands manufacture their goods in Asia. At the same time, UK imports of clothing and footwear from the EU both dropped by about 25%....This doesn’t mean UK or EU consumers no longer purchase these items, just that they are no longer counted in UK or EU trade statistics as UK or EU exports, but are now recorded as an import from the country of their manufacture: China, Vietnam, Turkey, Bangladesh, Morocco etc. The UK clothing and footwear companies still make money from these sales and the bulk of the revenue in this business is still earned in the UK 

This misattribution of trade to the EU port where goods were landed was known as the Rotterdam effect. It massively distorts EU trade statistics

 While she is there:

UK companies that export to or import from the EU must now fill in customs forms and this will have some cost to them, but previously those costs were borne by UK and EU taxpayers. Being a member of the EU was never free....UK consumers have not only been paying for these companies’ EU trading costs for years but they were also forced to buy more expensive EU products because cheaper non-EU goods were made uncompetitive by the addition of EU tariffs or restricted completely by tiny EU tariff-free quotas.

 The reasons for an initial fall in exports were:

the Transition Period when the UK continued to trade with the EU as an EU member, so Brexit was not the cause of this fall.[well--the uncertainty produced by it might have been? Project Fear didn't help]

the Covid lockdowns of non-essential production in the UK and in many of our component suppliers. The UK’s largest goods export sector – Machinery and Transport equipment – suffered key component shortages in 2020, 2021 and 2022  due to Covid supply chain disruption....the international travel bans during Covid meant most airlines could not afford to order new planes.

 Finally:

The UK’s largest individual export market for both goods and services is the US but the UK doesn’t have a trade agreement with the US, instead, we trade on WTO terms and this seems to suit both countries.