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Hello from London, where the mood is as changeable as the weather. Largely because it is not yet clear whether the Covid-19 Delta variant will crash dreams of a more normal summer or prove to be a shorter and less damaging third wave.
Our main piece focuses on that other problem affecting public life here: Brexit. Specifically, some odd differences between what the trade data produced by UK statisticians and their EU equivalents say about how drastic the impact of severing ties has been on exporters. Either way, the picture isn’t great. But quite how bad the reality is depends on which side you believe.
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An unexplained gap that’s troubling either way
With four months’ worth of UK-EU trade data, we should have a clearer picture of the impact of the new trade relationship that took effect on January 1. Except we don’t.
The reason is that UK and EU data paint a very different picture of the trade flows across the Channel. We can’t safely say if, in the first four months of the year, UK goods exports to the EU dropped by an OK-ish 4.8 per cent compared with the same period last year, as data from the Office for National Statistics show, or plunged by a drastic 27.1 per cent, as Eurostat data on EU imports from the UK claim.
Data on trade flows are never perfect — the smaller gap between the measurements for changes in flows of imports from the EU into the UK, for instance, is quite normal. However, the gulf between Eurostat and the ONS in estimating the change in the flow of goods heading in the other direction suggests something serious is amiss.
Indeed, Thomas Sampson, associate professor of international trade at the London School of Economics, described the discrepancy between UK and EU trade statistics in 2021 as “very concerning.”
He added that without clarity it was not possible to say how onerous the trade barriers introduced by the EU-UK Trade and Cooperation Agreement were proving. Or whether particular sectors needed additional help in dealing with new export frictions. Not great, then, for setting policy.
So what’s to blame? A likely culprit is the change in the way data has been collected since January 1.
The ONS explained that while its figures for UK imports from the EU continued to be collected via the EU’s Intrastat system, everything else now came via custom declarations.
“In light of the export collection changes, the disparity between Eurostat and ONS trade data will be largely seen in the export figures, rather than imports from the EU,” said Hannah Donnarumma, co-head of trade and tourism at the ONS.
While that’s certainly true, why is it the case that relying on customs declarations would produce such a different result?
Statisticians are a little stumped. Sampson told us it was “not obvious” why the data collection methods were leading to a discrepancy of this size.
The ONS has provided some explanations for the discrepancies between EU and UK trade data more broadly.
The headline UK figures are seasonally adjusted, while the Eurostat data are not. The UK data are also on a balance of payments basis, which means they are only counted when there is an exchange of ownership. The EU, meanwhile, counts any cross-border exchange — known as the International Merchandise Trade Statistics (IMTS) basis — as a trade flow. So, if a business ships a car engine from the UK to its subsidiary in France, that will appear in the EU trade statistics, but not in those of the UK.
However, UK HM Revenue & Customs publishes trade data on an IMTS basis and they show a similar trend to the ONS data. And neither factor would explain why the gap is only so yawning when it comes to exports from the UK to the EU, or — from the other side’s point of view — imports to the EU from the UK.
So there’s still a big element of mystery here as to what’s really going on.
The ONS decision to switch its data collection methods has also met with criticism in some quarters. Sampson told us it was “undoubtedly a mistake” for the UK to switch at the same time as implementing the new trade agreement. He also said that the switch came despite warnings from the government that this would cause problems with the consistency of the data series.
Michael Gasiorek, director of the UK trade policy observatory at the University of Sussex, noted that he was “not sure why” the two sets of data the ONS collected for trade between the UK and EU — one set showing goods coming in, the other out — should be based on different collection methods. However, he thought it was almost certainly because the UK was not yet applying full border checks and might not have the ability to collect the data appropriately.
Another question that remains unanswered is which set of statistics more accurately reflect the degree of damage Brexit is causing UK exporters.
“We really need to know what the drivers of the differences are in order to know which data to ‘trust’ more,” said Gasiorek. In the meantime, he invited policymakers to consider both sets of data to at least get “a range of plausible outcomes”, from the change of trade regime.
While we are not sure UK exporters’ sales to the EU fell 5 per cent or almost six times that amount over the opening months of 2021, it’s clear that the new arrangement is not great news for British exporters. Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said, whichever data was used, the UK “is missing out on the global trade upswing, due to Brexit”.
Particularly galling is that, according to Eurostat, EU imports from China and from most other big trading partners reported double-digit annual growth rates in the first four months of the year.
In the months ahead, opportunities will continue to rise as Covid restrictions ease across the EU. As big as the gaps between the statisticians are — trade data from both the UK and EU suggest British exporters will lose out due to the Brexit disruption.
Container shipping rates on some of the world’s major arteries are soaring yet again. The reason: an outbreak of Covid cases in China that shut the world’s third-largest container port. Harry Dempsey and Thomas Hale look into the impact of the disruptions at Yantian, Shenzhen, on global supply chains.
South Africa is set to house Africa’s first mRNA hub, which could be manufacturing Covid vaccines within a year.
Nikkei ($) digs into another reason for soaring global commodity prices: tightened supply resulting from stagnant mining operations and distribution services. It also reports that India and Europe are drawing closer to each other thanks to a unified front against China. Claire Jones
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