2.2
UK bilateral trade patterns
We begin in this section by providing descriptive evidence showing why China, among emerging economies, is UK’s most interesting (and potentially disruptive) trading partner. We then document UK bilateral trade patterns with China and contrast them with those associated with the EU.
Figure 2.1, which shows UK import values from the 5 BRICS countries taken individually, carries two main facts. First, as evident in the figure, the growth rate of imports from China exhibits, by far, the biggest increase over time. Second, imports from China took off abruptly around 2001, when China joined the WTO, largely surpassing UK import values from other BRICS countries.
Figure 2.1: UK import values from individual BRICS countries, 1988-2012
0
10
20
30
In Constant Prices (Billions 2005 GBP)
1988 1992 1996 2000 2004 2008 2012 Year Brazil Russia India China South Africa
Source:Using data from UN Comtrade for total manufacturing industries.
Adding to the picture, we can see in Figure 2.2, which replicates Figure 2.1 but plotting export values instead of imports, that China has become (since 2004) the most important export destination for the UK among BRICS economies; even surpassing India. These two pictures highlight the growing importance of China as a major trading partner for the UK, both in terms of imports and exports.
Isolating UK trade patterns with China, Figure 2.3, which plot values of im- ports from and exports to China, illustrates the strong asymmetric evolution of both trade flows. The growth rate of UK imports from China is far bigger than the corresponding growth rate for exports signifying that Chinese imports may put a bigger pressure on UK workers than the potential beneficial effects of export op- portunities in China. Moreover, the fact that imports took off around 2001, when
26 CHAPTER 2. IMPORTS AND INDIVIDUAL WORKERS IN THE UK Figure 2.2: UK export values from individual BRICS countries, 1988-2012
0
2
4
6
8
In Constant Prices (Billions 2005 GBP)
1988 1992 1996 2000 2004 2008 2012 Year Brazil Russia India China South Africa
Source:Using data from UN Comtrade for total manufacturing industries.
China joined the WTO, suggests (along with the first fact) that the Chinese export boom may be mainly driven by a combination of its internal-fostered transition to a market-oriented economy and of trade tariff reductions following WTO accession (something we cannot distinguish from this figure).
From the perspective of the UK, the rise of China in the world economy is expected to have similar qualitative impact on its domestic workers than in the US. Indeed, bilateral trade relationships with China appear to be qualitatively similar in both countries. (Figures B.2 in the Appendix, which displays similar trends for both trade flow types for the US.). Note the magnitude differences between the UK and the US of both trade flow types roughly correspond to the US/UK population ratio (around 5).4 Thus, as in the US, we can think of UK industries having been confronted to a major rise in import competition from China without a counterbalancing rise in demand for UK exports.5
Concerning the UK trade relationship with the EU, we can see in Figure 2.4
4When looking in proportion rather than in volumes, we reach the same observations; the growth
rate of the share of UK imports from China, relative to UK total imports, increases much more rapidly than the corresponding one for export share, with an inflexion point around 2001 (see Figure B.1 in the Appendix), and that is qualitatively similar for the US (see Figure B.3).
5Adding to the picture, we can observe the same declining path in the share of UK working age
population employed in manufacturing industries as in the US, which negative trend accelerated in the late-1990s and continued through the 2000s. Indeed, Figure B.11 in the Appendix shows that the share of UK employment in manufacturing has fallen from 19% in 1994 to 10% in 2011.
2.2. UK BILATERAL TRADE PATTERNS 27 Figure 2.3: Trade between the UK and China, 1988-2012
0
10
20
30
In Constant Prices (Billions 2005 GBP)
1988 1992 1996 2000 2004 2008 2012 calendar year
Exports to China Imports from China
Source:Using data from UN Comtrade for 166 consistently defined manufacturing industries.
that imports from and exports to the EU have increased over time with much sim- ilar growth rates than the corresponding ones with China.6 We can see that trade with the EU happens to be more balanced and of a different nature than with China, which will matter for its impact on the labor market (more on this in Section 2.7).7 This is where the distinction between gross and net imports (or whether bilateral trade patterns are mainly in the form of inter- or intra-industry trade) becomes crucial in understanding the trade competition impact on workers’ career paths. Indeed, we can reasonably think that imports from the EU might not be as detri- mental to workers as imports originating from China, because of potential comple- mentaries between imports coming from the EU and the UK domestic production structure.
6
Our definition of the European Union comprises the first 15 countries that entered the union before 2004 less the UK. The countries are Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain and Sweden.
7
As with China, UK bilateral trade patterns, in volumes, with the EU are qualitatively similar than those of the US with the EU (Figure B.5 in the Appendix). Moreover, UK (and US) exports and imports shares with the EU are closely match as well but slightly declining over time (see Figure B.4 for the UK and Figure B.6 for the US in the Appendix). Note that the proportion of imports coming from the EU and exports going to the EU is 2 to 3 times bigger for the UK than for the US highlighting the relative importance of the EU as a key trading partner for the UK.
28 CHAPTER 2. IMPORTS AND INDIVIDUAL WORKERS IN THE UK Figure 2.4: Trade between the UK and the EU, 1988-2012
0
50
100
150
In Constant Prices (Billions 2005 GBP)
1988 1992 1996 2000 2004 2008 2012 calendar year
Exports to EU15 Imports from EU15
Source:Using data from UN Comtrade for 166 consistently defined manufacturing industries. UK
is omitted from the EU.