Economics » Are businesses becoming more positive on international trade?

 

International trade is not normally front page news, but the ins and outs of Brexit and the whys and wherefores of President Trump’s stance on imported goods have changed that.

Trade is sometimes seen as the least important factor driving GDP movement. Consumption is all around us in shops and restaurants, investment is felt in housebuilding and new factories, and government spending is seen in defence and healthcare. Trade, however, well trade is just trade.

Net trade (the value of goods and services that the UK exports minus the value of goods and services that it imports) is negative; we import more than we export to a value of about 0.7% of GDP – approximately £17.7bn.

While this is not uncommon for a developed, Western nation, the deficit poses a risk to the UK as a consumption and service based economy in a world wherein trade may become more difficult going forward.

Business is booming

Despite the overarching threat to international trade, WorldFirst’s latest Global Trade Barometer, a survey of over a thousand British SMEs, revealed that the number of UK SMEs trading overseas rose for the first time in a year in Q2 2018.

The survey also found that 32% of businesses made at least one foreign transaction a month over the quarter, up 6% on Q1.

This rise has been spurred by the increase in larger SMEs taking advantage of opportunities to do business abroad. In Q2, over half (52%) of medium-sized enterprises made at least one foreign transaction each month, compared to just 37% the previous quarter.

For those already trading internationally, business appears to be booming. The average UK SME made overseas transfers of £47,000 in Q2 as small businesses engaged in approximately £84 billion worth of global trade over the quarter.

This represents almost a 25% increase in average overseas transfer values (£38,000) compared to the same period in 2016.

The Brexit bell tolls

However, despite continued success in the face of a challenging macroeconomic environment, British SMEs cannot ignore the looming threat of Brexit.

As the government tried to navigate a path forward for the UK over the last quarter, the number of businesses who claimed they were not concerned about Brexit having a negative effect on their business fell significantly from 44% to 28%.

It is clear that legislative uncertainty is breeding doubt and worry amongst SME traders and there are a lot of questions to be considered before the end of the year.

Are the continual increases in international trade a result of stockpiling ahead of anticipated issues further down the line? What do small business contingency plans look like and when will they be enacted?

The publication of the Chequers plan confirmed some fears around the UK’s ongoing relationship with the EU in a post-Brexit world, most notably the complete lack of provision for the services industry – a key sector making up over three quarters of the UK economy.

Of course, this may all end up being purely academic in a few weeks given the belief that the Chequers plan will not be voted through by the UK parliament, let alone Brussels.

Planning is key

In the meantime, however, international businesses are embracing contingency planning while they still have time.

It was reported a few months ago, for example, that Airbus and Jaguar Land Rover were planning on shifting some of their production facilities to the EU in a bid to maintain supply chain reliability post-Brexit.

While such large scale plans are likely out of the reach of the majority of SMEs, businesses who trade internationally should have begun having conversations with suppliers and customers about everything from pricing and invoice settlement, to delivery logistics and regulatory changes by now.

With such a high level of uncertainty as to how the land will lie come the end of the Article 50 period, these conversations should allow individual supply chains to work out what is and isn’t viable for them. Loyalty should be rewarded with favourable terms such as discounts or longer invoice periods.

Ultimately, one swallow doesn’t make a summer and one year of rising trade doesn’t make for a trend. We hope that the picture for international trade in the UK continues to blossom over the coming years, but for now serious risks remain and it is vital that SMEs use this time to address them immediately.