Trade Deals: Does Europe really need the UK more than the UK needs Europe?

At this point in the referendum the proliferation of various claims from each side can become daunting with the sheer volume meaning little scrutiny or perspective can actually be given to both their truth and also the bigger picture. One such claim is with regards to the economy and the economic impact on our prospects and also investment in our country in the event of a Brexit. 

The central claim of the leave campaign is that any post Brexit trade deal would not be difficult to organise as the incentives to trade will not vanish, which is true.  Additionally as the 5th largest economy in the world Britain is an important market, also true. Moreover a Brexit would free Britain to create new trade deals with the US and China, also true. 

So far so good I hear you say, however this is where the argument becomes unstuck. As Farage claimed in yesterdays ITV debate, Europe needs us more the we need Europe and it is businesses that organise trade not governments.....NOT TRUE. 

The incentives to trade would not dissipate but one of the central tenets of the trading game is that the terms of trade matter, just ask any developing country or even Japan and the USA trying to trade with Europe. There is massive pressure to protect your strategic industries and institutions which are important to electorates; just look at the furor over TTIP and TPP and you can see how difficult these are to settle. With this in mind you can understand why countries would fight tooth and nail to set the terms of trade, including tarrifs and rules of production in their favour.

This brings us to the position of the UK in establishing trade deals with both Europe and other large countries and blocks such as China, the USA and ASEAN. What can be seen from the image above is that by GDP PPP (which takes account of currency movements and different prices) the UK is a significantly smaller market then those with which it would seek to establish an advantageous trade deal. It is true that the UK is the 5th largest economy by nominal GDP, but this is not the best measure. By GDP PPP the UK is actually 9th and growing slower then many developing countries. In addition, the UKs' key industries services and financial services have major competition in each of the big blocks it would seek to create a trade deal with; Frankfurt in Europe, Wall Street New York in USA and Hong Kong in China. What this means in the cold hard world of trade deals is that each would seek to set the terms of trade which would help them steal business from the UK. To expect anything else would be naive. 

What Europe gives the UK is the power to set terms of trade in our favour and to protect our key industries in a way our economic size alone would not. This is not to talk down the UK, but to set out in a clear and realistic way the options we face and the advantages remaining in the European Union give us in negotiating terms of trade which would protect our jobs and allow us to grow more quickly. This applies not just to economics but politics, the power to influence other countries by harnessing Europes collective economic heft magnifies British power, it does not diminish it.