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The importance of trade for jobs

The Brexit negotiations are entering a decisive phase, with leading UK business organisations saying they will not invest and must consider whether they relocate if there is no agreement on a transition phase and there is clear progress on trade talks. For its part the Tory Cabinet is deferring any discussion on its key aims for EU trade talks, despite the pretence it is clamouring for them to begin. Any decision on the desired new relationship with the EU would probably lead to Cabinet splits, so discussion is being avoided.

The potential damage to the economy and living standards can be gauged in terms of jobs. Chart 1 below shows the number of UK jobs that are directly dependent on exports. In OECD jargon, these are the totals of ‘domestic employment in the UK embodied on overseas final demand’.

Chart 1. UK Employment Dependent on Exports, by region

 

There are 6.6 million UK jobs directly dependent on exports. The total could be far larger including jobs indirectly dependent on exports. OECD member countries account for 4.8 million of the jobs total, non-OECD for the remaining 1.7 million (numbers do not sum due to rounding). This is 2011 data, the most recent available and has probably grown since (for reasons discussed below).

Separately, the EU directly accounts for 2.8 million of the total. As elsewhere, this is only the direct total not including indirectly-supported jobs and has also probably grown since. Furthermore, through the EU the UK currently has some type of ‘free trade’ deal with between 50 and 60 countries. In reality, these deals are for lower tariffs and non-tariff barriers than would otherwise apply through World Trade Organisation rules, without being in the tariff-free regime of the Single Market.

The effect of leaving the EU Single Market would be threefold. First, any new tariffs or non-tariff barriers between the UK and the EU would raise prices of production that would lead to higher prices overall. Producers may try to mitigate these by lowering UK wages and relocating jobs to within the Single Market area. A relatively small increase in these barriers or tariffs may lead to a much larger fall in wages/loss of jobs. A car manufacturer’s profit margin may be, say, 10% but as the tariffs on components range from just under 3% to 10% for complete cars, this would be a large part of total profits, or all of it. The incentive to drive down wages and/or relocate would then be very great.

Secondly, similar considerations would apply to all those countries where the UK currently has a trade deal via its membership of the EU. They too would want to lower costs with lower wages and/or consider relocating. In addition, simple calculations about the respective size of markets may also prompt relocations from the UK to the Single Market area.

Thirdly, these various trade deals usually contain little or nothing at all about trade in services. Services tend to be more thorny issues, not least because freer trade in services means more liberalised immigration regimes, as services are essentially about people (finance, accountancy, law, education, and so on). Yet it is in the services sector where the UK economy has a clear advantage, and currently benefits from the highest level of liberalisation in the Single Market. In 2016, UK exports of services accounted for one quarter of total exports.

Brexiteers argue that the EU is one of the slower-growing regions of the world economy. This is correct. But nothing in Brexit will raise the level of exports or the jobs that depend on them. Table 1 below shows the growth in employment by exports from regions and countries from 1995 to 2011 (the full range of the OECD data).

Table 1. Growth in Employment Dependent on Exports, by Region and Country, 1995 to 2011
Source: Calculated from OECD data

In common with many other countries, the UK has an increasing proportion of jobs which are dependent on exports. This reflects the continuing growth in the international division of labour. This is despite the fact that the UK’s low investment and productivity rates mean that the growth rate of export-dependent jobs is lower than many other industrialised economies.

Total UK direct employment dependent on exports rose from 20.9% in 1995 to 22.5% in 2011. This is a concrete measure of the growth of the international division of labour, or what Marx termed the socialisation of production. In key sectors the change has been dramatic, so that in 1995 roughly half of all employment in the machinery and equipment sectors was dependent on exports, by 2011 it was over 70%. For transport equipment (including cars) employment rose from just under half to more than two-thirds.

Total non-OECD export-related employment has been growing much more strongly than OECD export-related employment. This reflects the much stronger economic growth of the non-OECD economies. In all cases, these data belie the claim that ‘X country is taking our jobs’. The reality is that increasing trade is increasing UK jobs.

The two most important non-OECD countries in terms of creating jobs in the UK are China then India. Within the OECD bloc the US and then the EU itself are the areas creating the greatest number of UK jobs. Within the EU28, Spain has been the most important country for UK job-creation. The UK’s much lower level of competitiveness means it is not gaining German, French and other export-related jobs. Together these four, the US, China, India and the EU are responsible for more than 700,000 new UK jobs in the period 1995-2011, or 60 per cent of total new directly export-related jobs.

In Trumpenomics there is a reactionary idea that freer trade arrangements such as NAFTA have destroyed US jobs. In reality, the US has added about 1 million jobs based on exports to Canada and Mexico since 1995, a year after NAFTA came into force. Unfortunately, this type of crude mercantilism has much wider support than Trump and his delusional supporters. It is expressed as the idea that that the growth in imports exceed the growth in exports, then the decline in net exports is economically detrimental.

But the growth in the international division of labour/socialisation of production represented by rising trade both increases jobs and their productivity, so raising living standards. As Adam Smith pointed out, if coal is produced in Newcastle and then it is used in smelting, the citizens of Newcastle may buy the metal products with the proceeds of their coal production. This is true whether the smelting takes place in Aberdeen or Amsterdam. In either case the smelting operations create jobs in Newcastle.

A withdrawal from the Single Market would go against the tide of economic development and current international practice. It would unilaterally replace a tariff-free regime with new tariffs and non-tariff barriers. It would therefore cost an unknown but large number of UK jobs.

11 Comments

  1. JohnP says:

    Good grief ! Is this the shape of left Futures to come ? A long hiatus during which many good , though critical, articles from the Left are refused – but now that uncritical neoliberal EU fanatic , O’Leary gets a re-blog of his usual doom-mongering, highly selective , stuff .

    O’Leary , as usual sets up a Straw Man argument with highly selective data – firstly that leaving the EU represents some sort of UK withdrawal from world trade ! No it doesn’t , Tim. We’ll trade with Europe and the rest of the world outside of the EU and Single Market too.

    Mr O’Leary, being entirely enmeshed in neoliberal economic assumptions, gives us a neoliberal economics lecture too on the claimed unadulterated benefits to all economies of unrestricted trade, a la TTIP and CETA presumably . This is the bogus old “Law of Comparative Advantage” claimed in A Level textbooks when describing the theoretical , imaginary, model of “Perfect Competition”.

    This completely bogus theory posits that no country need protect any element of its economic base from foreign competition , because that “Invisible hand of the Market” will ensure every country specialises in its most efficient products and services to sell in the marketplace. And hey presto, everybody wins ! This is juvenile pseudo economics for economic illiterates . Even in the Eurozone most aware economists , even non socialist ones, understand that German economic supercompetitiveness compared to all its southern Eurozone partners , and German Capital’s insistence on running a permanent trade surplus, is destroying the weaker economies of the EU – within the straightjacket of the Euro. Whilst we can rightly sneer at Trump’s simplistic “America First” economics, the fact remains that unrestricted global trade has reduced previous economic heavy industry heartlands in the US (and UK, and France , etc,) to devastated ghost towns , as global capital has shipped these industries to low wage, high oppression, economies , like China. That has been good for global capital, but devastating for the mass of the working classes in these abandoned regions. Just sneering at the Straw Man of the cynically corrupt Right populist, Trump, doesn’t actually abolish the requirement for the free reign of globalised capital to be replaced by socialist planning, nationally where possible, and regionally and globally eventually. That is what being a socialist is about, Tim.

    Why is a total neoliberal like O’Leary allowed to publish his Financial Times /Economist economic nonsense on a “Left” discussion forum – but Left critics aren’t ?

    1. Imran Khan says:

      Some evidence would be of assistance.

      1. Stephen Bellamy says:

        Since when does a question require evidence. But I will take that as in your opinion the answer is yes

        1. JohnP says:

          Soubry was only referring to the Jarad O’Mara case , and his support during the Election by Momentum, as a rather desperate attempt to distract from the current Tory abuse scandal, during the Channel 4 interview. There was no suggestion by Soubry of any accusation of misbehaviour by Jon Lansman during the discussion.

          This has nothing to do with the subject being discussed in this thread.

          1. Stephen Bellamy says:

            There you go” Imran” John disagrees with you. Hard to know what to think.

            Hang on, says my sister’s pet canary’s retarded cousin…….O’Mara’s name was already way out there so why would it be a name that could not be spoken, and in any case his case has little or nothing to do with sexual harassment but rather the expressing of iffy views.

            I said kid if you carry on like this you might find a puddy cat sneaking up on you.

          2. JohnP says:

            Nothing in what the poster identifying himself as “Imran Khan ” says suggests he knows of any accusation whatsoever regarding Lansman either. He is simply asking whether YOU know of any.

            Tory MP Anna Soubry makes no accusation whatsoever about Lansman in the interview , nor even mentions him ! Her comment is just a classic diversionary “oh look there’s a squirrel” attempt to drag the Jarad O’Mara case , and Momentum, somehow, into what at that time was purely a Tory abuse scandal (prior to the more recent Labour official rape accusation).

            Leave this nonsense, Stephen. You are allowing your hatred of Lansman over the “Zionism” issue to seriously cloud your judgement.

            Note to moderator: This specific set of posts could be considered potentially libellous/defamatory and would be better deleted.

          3. Stephen Bellamy says:

            Well it wouldn’t be the first time he has deleted a thread when it hit a nerve.

            Robert Green

            June 21, 2016 at 3:15 pm

            You should be more worried that you participated in a New Labour/Zionist witch hunt of Palestinian supporters in the Labour Party which has left activists and elected representatives vulnerable to murderous fascist assaults.

            Reply

            Stephen Bellamy

            June 21, 2016 at 4:17 pm

            Why didn’t I think of that.

            And I, as the only potential libellor on the thread am grateful for your concern. But don’t worry about me.

  2. Karl Stewart says:

    Blairist economics

  3. Karl Stewart says:

    Why is a site called “Left Futures” getting someone to write articles praising the capitalist system and supporting so-called “free-trade”??

  4. Karl Stewart says:

    Tory O’Leary

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