Dr Liam Fox: Future of Trade and Export Forum speech
International Trade Secretary's speech to The Telegraph Future of Trade & Export Forum in London.
1. Introduction
Perhaps I could start with a question. Of these Government Departments, which has the biggest budget?
Justice, Defence, the Home Office, International Trade. Answers on a postcard. Well, last year Defence came out top, with £28.4 billion. The Home Office was second at £10.8 billion. Third was Justice at £6.3 billion. The Department for International Trade was way down the list. But what might surprise you is the size of the gap between International Trade and the other Departments. In fact, DIT’s budget was less than a tenth of the Ministry of Justice’s, at around £400 million.
Now, this is in no way to suggest other Departments are over funded or that justice, the police or the defence of the realm are not vital spending priorities. I could hardly say otherwise as the former Defence Secretary!
2. DIT in context
But I wanted to put my remarks here in context because there is an untold story here, which I’m going to set out today.
I am proud to lead a department which has a direct impact on our prosperity.
In 2017/18 alone, we helped UK businesses export goods and services worth around £30.5 billion, against our total exports of around £645 billion.
And based on analysis by the Institute for Economic Affairs, DIT estimate that this could potentially generate around £10 billion for the Exchequer.
Over 2016/17 and 2017/2018 we supported more than 3,500 inward investment projects, creating and safeguarding over 190,000 jobs.
So my point is that we have some amazing ‘bang for your buck’ given the resources and for the taxpayer’s investment.
Yet for all this success there is an implicit warning. Global Britain cannot be built on a shoestring.
As the UK leaves the EU, it is vital that Government aggressively promotes and finances international trade and investment, and champions free trade: promoting the private sector companies that are the wellspring of our national prosperity.
Economies in South Asia, East Asia and Africa are becoming more and more prosperous, driving demand in precisely those sectors in which the UK excels.
Ensuring Britain succeeds in this new era means having the right tools to ensure we can unlock the global economy, which will in turn support the UK economy.
And to sell Britain abroad we need to understand two things. First, the markets we are selling into and the opportunities that they have to offer. And second, our overseas network also has to understand what Britain has to sell in goods and services, constantly updated by our sector teams here in the UK.
If the United Kingdom is under-armed – if we fail to rise to the opportunities and challenges of a rapidly changing global economy – there are plenty of competitor countries who may be better resourced or equipped. We must ensure that Britain is not left behind in the global trade race.
3. The case for DIT
Now, according to the International Trade Centre, the UK has an untapped potential of £124 billion in the export of goods alone. That’s companies that could be exporting because their peers do but are not choosing to do so.
And fulfilling this potential means being serious about the scale of the challenge posed.
As we prepare for life after Brexit, we must embrace the opportunity to connect into the markets of the future.
The global economy is changing, as you all know, at a staggering pace. The population is projected to increase to 9.8 billion by 2050, and will become better educated, wealthier and more urbanised.
It is predicted that the share of global GDP of the seven largest emerging economies - including China, India and Turkey - could increase from around 35% to nearly 50% of global GDP by 2050, which would mean that they overtake the G7.
Last year Africa had five of the world’s fastest-growing economies.
Africa’s GDP has been predicted to double between 2015 and 2030. And the African Development Bank has estimated that by 2060 there could be 1.1 billion middle class Africans: quite a big consumer market.
This is a golden opportunity for high value UK goods and services to find new consumers and business markets.
And we are working at the moment to deliver the Prime Minister’s ambition for the UK to be the largest G7 investor in Africa by 2022.
Yet, notwithstanding that, the Department for International Development has more staff in Kenya than the Department for International Trade has in the whole of the continent from Egypt to South Africa.
This is not to say that our international development efforts are too large, or that they are in competition with our international trade and investment promotion efforts.
However, if we want to have greater influence, if we want to sell more goods and services abroad, if we want to encourage more British businesses to invest and operate overseas, and overseas firms to locate and invest in the UK, then we must invest in the capabilities required.
And this means striking a new balance between our spending priorities – not just focusing on how we divide our national income, but how we grow that income too.
Within whatever spending envelope comes out of the next Spending Review, we must ensure that we prioritise those areas that will generate economic growth and wealth creation for our country in the future.
4. Free & fair trade
Over the past three years, I have spent a great deal of time talking about the benefits of free trade. Open, free and fair trade, rooted in a sound and relevant international rules-based trading system has repeatedly shown itself to be of huge benefit to both individuals and states; producers and consumers; and in both developed & developing countries alike.
And I say consumers because, all too often, we focus on producers without setting out the benefits of free trade to household incomes: keeping prices down and ensuring competition and diversity of supply.
In fact, I sat through an International Trade Ministers’ meeting where I had my watch out to see how long it would take anyone to say the ‘c’ word: 52 minutes before anyone mentioned consumers.
As the world’s emerging and developing economies have liberalised trade practices, prosperity has spread, bringing industry, jobs and wealth where once there was only deprivation.
According to the World Bank, the three decades between 1981 and 2011 witnessed the single greatest decrease in material deprivation in human history. Or, as Francis Fukuyama put it in his recent book “Identity”, the percentage of children dying before their fifth birthday declined from 22% in 1960 to less than 5% by 2016.
A billion people taken out of abject poverty in one generation. That is why it is morally unthinkable to reject free and open trade.
[Political content]
Now, as with many freedoms, free and open trade can seem like an inherent fact of life. But the reality is that these freedoms and the benefits that they bestow have been hard-won. They must be continually defended from the siren-call of protectionism, which would tip the global balance in favour of the rich against the poor, the strong against the weak, and the developed against the developing.
And it is worth reminding ourselves of the positive narrative around free trade and the improvement of the human condition, because in the world around us, there is a rising chorus of protectionism which threatens to drown out the case for a free and open global trading system.
New barriers, which were touched upon in the last session, many of them invisible, are emerging around the global economy, creating new impediments to the open commerce that is the lifeblood of global prosperity.
What is worse, many of these impediments are being introduced by G7 and G20 countries - the very nations who have prospered most from the open, liberal trading system of recent decades.
Research by the OECD has shown that protectionist instincts have grown since the financial crisis of 2008. By 2010 G7 and G20 countries were estimated to be operating some 300 non-tariff barriers to trade: 300. By 2015 this had mushroomed to over 1200 non-tariff barriers to trade. Now protectionism can be seductive but is a dangerous affair. I have described it as the class A drug of the trading world – it can make you feel good at first, but it can prove disastrous in the long term.
It is economically destructive, preventing us from reallocating global resources effectively. It is also socially regressive because those on lower incomes spend a higher proportion of their money on goods than services so tariffs and barriers will hurt the poor more. And we will all pay the price if those denied the opportunity of global prosperity turn their backs on the partnerships and cooperation that underpin global security.
We all have to ensure that those who have most benefited from open and free trade do not pull up the drawbridge behind them and deny the same benefits to others. Why? Because I have never believed that trade is an end in itself, but a means to an end. Trade is a means to an end. Trade is a way in which we spread prosperity more widely. That prosperity underpins social cohesion, that social cohesion in turns underpins political stability and that political stability is the building block of our collective security. If you interrupt that continuum of trade and investment, do not be surprised if you get unwanted consequences, politically, economically or in terms of security.
5. DIT’s role in ensuring a thriving economy
Now the Department for International Trade has been key in ensuring we are in a better position to achieve our aims.
We have been working as never before to help businesses take full advantage of global opportunities, ensuring the UK remains a leading destination for international investment, assisting outward direct investment for UK companies into overseas markets, and negotiating market access for UK exporters.
Last year we launched a new Export Strategy: to encourage, inform, connect and finance businesses of all sizes with the goal of increasing our exports from 30% to 35% of our GDP moving us to the top of the G7.
We have convened the Board of Trade for the first time in 150 years to champion trade and investment promotion across whole of the United Kingdom.
We have created an overseas network of Her Majesty’s Trade Commissioners selected for their expertise in particular markets, building our regional trade plans and securing market access across the globe.
We have our world-leading export credit agency UK Export Finance, celebrating its 100th birthday this year, with a £50 billion capacity , available in 65 international currencies, to ensure that no UK export fails for lack of finance or insurance: and at no net cost to the taxpayer. 77% of the businesses that UKEF supported in 2017/18 were small and medium-sized enterprises: a step change from the situation previously in terms of that business relationship.
And, recognising that it takes more than one business to deliver an export contract, I was very proud to announce earlier this month that UKEF has extended eligibility for its support to companies in exporters’ supply chains: not just end stage exporters themselves.
And this will enable these firms, from car parts suppliers to food packagers - who play a crucial role in supply chains but do not directly sell goods or services themselves overseas - to access the support they need to thrive, including in vital areas such as cashflow.
We have also launched the UK’s first ever public consultations on new trade agreements - with the United States, Australia and New Zealand, as well potential accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or CPTPP: easier said in the morning than after a drink in the evening!
6. DIT’s global competitors
And there is pressing reason for these efforts. It is no secret that countries across the world are ramping up their trade and investment promotion efforts.
President Macron’s ‘Choose France’ initiative is openly seeking to attract businesses who may be looking to relocate from the UK.
And the Dutch Government has hired more personnel to optimize support for British companies to move from the UK.
And yet despite this, the United Kingdom continues to be the top destination in Europe for attracting foreign direct investment: reaching a record high on the latest figures to the end of 2018.
For the first time in more than four decades, Britain has the opportunity to reach out to the wider world as an independent trading nation, and a global champion of free, fair, rules based international trade.
And, in the shape of the Department for International Trade, the UK has an ideal – and indeed unique tool – to realise that opportunity to drive growth in a post-Brexit economy.
And unlike many of our strategic partners such as Australia, or Canada, the United States or the European Union, the United Kingdom is unique – and I wonder how many people understand this - unique in carrying responsibility for export promotion, trade finance, trade remedies, exporting licensing and international negotiations in a single government department.
It is one of the most important and farsighted legacies of Theresa May’s time as Prime Minister of this country.
And DIT unites all the UK’s trade capabilities, bringing together the government’s international economic levers to give us a truly competitive ‘Trade Advantage’.
It puts trade front and centre of the national agenda, a focal point to create the conditions for UK businesses to be competitive on the world stage.
And as the only department with a network both in the UK and overseas, DIT is uniquely positioned to engage directly with business, with the high levels of expertise and global reach that those businesses need to exploit new opportunities.
7. Aligning trade and development policy
Now, it is not just about structures. As you will know it is also about priorities.
It means ensuring that trade is at the forefront of the foreign policy agenda, as well as our development agenda, so that we can use the new policy freedoms which will be realised after we leave the European Union to better align our international policy goals.
This means recognising the key role of trade in boosting global prosperity and security, and giving developing nations a chance – a real chance - to trade their way out of poverty on a sustainable basis.
The Government is working hard to ensure development and global prosperity are at the heart of UK trade and investment policy, enhancing market access for poorer countries and ensuring that they can take advantage of this access through trade-related assistance that we give.
We are committed to bringing trade and development policy closer together, investing to build a safer, healthier, more prosperous world and helping countries in the developing world leave aid dependency to become our trading partners of the future.
This includes our £1.2 billion cross-Whitehall Prosperity Fund , to promote economic reform and development in countries eligible for ODA.
And this will help tackle poverty and unlock new opportunities for UK businesses in strategically important markets such as India, China, Brazil, Mexico and South-East Asia.
8. Global Economic headwinds
And I believe the need for all this this is now stronger than ever. It will be no secret to those of you in this room this morning that significant headwinds are growing across the global economy.
Last month, the OECD forecast of world GDP growth in 2019 and 2020 were revised down to 3.2% and 3.4% respectively.
At the same time, global trade growth forecasts have been revised down significantly: by 1.6 percentage points to 2.1% for 2019 - the weakest rate since the height of the financial crisis.
And for the first time in decades, the system of free, fair, rules based multilateral trade which underpins our prosperity, has itself come into question.
The World Bank has identified that mounting protectionism and a broad-based increase in global tariffs could translate into a possible annual decline in global trade of 9%, or over US $2.6 trillion relative to the baseline in 2020.
Of course, the strength of the UK economy has so far bucked the trend. The employment rate is at a record high, while the unemployment rate is at a 45-year low. Wages are growing faster than inflation.
British exports stand at a record high of £645.8 billion – a year-on-year increase of 4% at a time when global trade growth has been slowing.
And, as I have already pointed out, latest figures from UNCTAD found that the UK has once again been confirmed as the number one destination for FDI in Europe – hitting a record high of almost £1.5 trillion in stock – more than Germany and France combined.
Nevertheless, for all its successes, we must acknowledge those headwinds in the global economic outlook in which we operate, and the risks which we therefore face.
We need to take the measures in cooperation with our international economic partners to ensure those risks are mitigated, standing up for our belief in free trade and the free trading system.
Otherwise there can be no guarantee that our economy will not be affected by adverse trends.
9. Conclusion
So we must be ready for whatever the future holds.
The UK can only meet its global ambitions and drive prosperity at home – during a time of fierce international competition and global economic challenges - if it puts trade at the top of our agenda.
That is why, at this critical juncture in our national history, it is essential we are appropriately equipped so the UK can boost its competitiveness, forge new and enhanced trade relationships around the world, and thus achieve our full economic potential.
We have a once in a lifetime opportunity to realise our country’s potential as an outward looking, Global Britain.
A country that promotes prosperity worldwide by helping developing countries to trade their way out of poverty.
A country that champions free, fair, rules based trade, abiding by and shaping world-class standards and the international rules-based trading system.
But we cannot do this on a shoestring and we must be willing to prioritise our spending to where it will lead to greater wealth creation and growth, providing us with the future funding of public services such as health, education and defence.
Failure to take the scale of the challenge seriously will mean we may lose out on the potential of a new golden era of British trade.
The opportunity is out there for the taking. And we must embrace it: with confidence, with optimism, and above all, with courage. Thank you.