UK trade deficit between EU worsens as exports half

The UK’s exports to the European Union have almost halved this year, thus widening the EU’s trade surplus with the United Kingdom.

Eurostat has reported that following the end of the Brexit transition period, or the first two months of 2021, both EU exports to and imports from the United Kingdom “dropped significantly.”

The UK’s exports to the EU are down 47% in January and February, a decrease to £14.4 billion from £27 billion in the first two months of 2020.

However, European exports to the UK have seen a lower decrease of 20.2%, a decrease from €49.9 billion to €39.8 billion.

The combination of these two factors has led the EU’s trade surplus with the UK to rise to €23.2 billion in the first two months of 2021, from €18.6 billion a year ago.

The widening trade between Britain and the European Union reflects the UK’s decision to phase new checks on EU imports.

The decision to do this gave European businesses much more time to adapt, meanwhile, the EU implemented these checks on January 1st, which gave UK exporters much less time to adapt.

This meant that UK businesses have experienced a much larger increase in paperwork and red tape, so, UK firms have suffered increased costs in the form of extra time having to be allocated for these changes.

Because of these increased costs, the UK’s ability to export products compared to that of the EU has consequently decreased, thus forcing the exports of the nation towards the European Union downwards.

This has likely led to a widening current account deficit as more money is leaving the UK economy than is entering.

However, the main reason why the UK’s current account deficit has decreased so much is not because of the paperwork, but because of the COVID-19 pandemic.

To explain this point we first must recognise that the UK is a service-led economy.

The reason why the UK specialises in services such as finance, hospitality and tourism is that they suit the nations factor inputs.

These industries require a lot less raw materials than manufacturing nations, and, this is significant because the UK has no easily harvestable raw materials available, so, the only factor input which is abundant in the UK is labour.

And the UK has a lot of labour, and, our labour is quite highly skilled, so, the nation is perfect for services such as Finance.

Additionally, the tourism sector is reliant on labour, and, the UK’s rich history also makes it the perfect nation for such service.

Therefore, because the UK manufactures very little these days compared to what it used to in the industrial revolution as a result of the nation having no raw materials, the UK is a service-led economy.

For this reason, the nation will naturally have a current account deficit as the only reliable export is tourism as money enters the economy through tourists coming in and spending.

However, because of the COVID-19 pandemic, lockdown restrictions have been imposed in European countries as well as the UK alike, so, tourists cant enter the nation.

Therefore, because tourism is a primary export of the UK, the reason why the current account deficit has worsened is not because of increased paperwork, but mainly because of the COVID-19 Pandemic.


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