International Trade and the UK Economy


When the UK joined the Common Market under the Conservative Heath government, it was felt that the free trade arrangements across the participating countries would benefit the ailing UK economy. Besides the annual fees to the Common Market budget, the price we had to pay to join was donating our fishing grounds to be used by the other countries and also accepting that Common Market laws would be set above our national laws.

Looking back over the development of the Common Market into the European Union, we can now see that the initial optimism was misplaced. Our trade with EU countries has stayed much the same since we joined and we are now prevented from making our own free trade agreements with emerging countries in East Asia, which is holding back the development of our economy. We have a huge trade deficit, while Germany has a large trade surplus. Our fishing industry has almost disappeared and the EU principle of the free movement of people has flooded our economy with cheap labour, putting UK citizens out of work and bringing the productivity of much of what is left of of our manufacturing industry down to a very low level.

Georgie’s tale

I hear people on the radio and tv often going on about “austerity” and cuts to public services. I don’t think I have ever heard about the trade deficit. Why not?
Garfield in garden3

Garfield’s reply

The UK has two deficits. First is the budget deficit – which means people’s taxes are not enough to pay for government spending. To get rid of this, government spending has to be cut, while they try to make the economy work better, so people can earn more and be taxed more and still feel happy. Second is the trade deficit – which means people in the UK buy from abroad, including from the rest of the EU, more than they sell back to them.

People feel the budget deficit remedies affecting them, so these get talked about. The trade deficit is not considered to be a problem for ordinary people, so the media largely ignore it. However the UK economy still has to fill the trade gap and pay for the imports which are not balanced by exports. We have to borrow large amounts and pay huge amounts of interest. Our economy is always in debt and always trying to play catch-up. That’s why governments like gentle inflation because it diminishes debt over time.

The only way out of this is to increase the range, quantity and quality of manufacturing all the products we need and use in the UK. We need to replace imports in large measure by the efforts of our own home industries and we need to export all over the world under the most favourable terms we can negotiate, not just to and through the EU. This will put more people into useful jobs in the UK and reduce both deficits. Staying in the EU means stagnation and a continuously declining economy.

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