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How a digital approach to trade could empower economic growth

The government should adopt a ‘trusted trade’ model built on the latest supply chain technologies and agreed global standards.

By Marco Forgione

Since winning the general election on 4 July, Keir Starmer’s government has set itself a clear agenda to grow the UK economy and to achieve the highest sustained growth in the G7. Delivering this core mission will require bringing Whitehall and businesses together, in a coordinated way, to forge a clearly defined, new industrial strategy.

Johnathan Reynolds, the new Secretary of State for Business and Trade, recently clarified that this strategy will include detailed approaches to imports and exports. The Chartered Institute of Export & International Trade has been advocating for this coordinated and integrated approach for some time.

Research shows that businesses which trade internationally are more sustainable, more resilient, more innovative, employ more people and are more profitable. We can only address the social, economic and productivity challenges the UK economy faces by growing our international trade.

The UK continues to be a world leader for trade in services, which have performed strongly since the pandemic, rising by 12 per cent. Goods trade has stalled, however, being currently 10 per cent lower than pre-Covid levels and lagging behind our G7 peers, according to the Office for Budget Responsibility.

A significant factor in this is that only a tenth of British SMEs currently export, compared with over 14 per cent in Canada. Businesses have been grappling with new rules following Brexit. Many SMEs have now reduced or stopped their international trade, especially with the EU.

In addition to the impact of Brexit, businesses are having to adjust to an altered post-pandemic trade landscape. Tectonic geopolitical forces continue to reshape traditional diplomatic and economic ties, with businesses and their supply chains having to navigate conflicts, war, economic realignment and environmental change.

With the World Trade Organisation (WTO) stuck in deadlock on key issues, including key digital trade agreements, the UK should be looking to take a lead in shaping a new era for global trade. A move away from the traditional “free trade” model to one of “trusted trade” is needed, making the most of the benefits of trade digitalisation, supply chain visibility and collaborative partnerships built on agreed global standards.

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While new trade barriers continue to emerge, new opportunities are also arising, powered in part by the digitalisation of trade. Indeed, a report by the Social Market Foundation (SMF) in 2022 identified 70,000 UK SMEs with potential to sell cross-border using online platforms. It concluded that mobilising these businesses to trade internationally could boost the UK economy by £9.3bn, creating 152,000 new jobs.

The report made a series of recommendations on how this could be achieved, including the formation of a new industry-led commission to encourage SMEs to trade online. The Chartered Institute took up this call, convening the E-Commerce Trade Commission in June 2023 to advise the Department for Business and Trade (DBT) on how to boost online exports. With representatives from Amazon, eBay and Google on its board, among others, the commission is continuing to advise DBT under its new Labour leadership.

The commission is now about to publish a new report, which SMF was again commissioned to produce. SMF surveyed 525 SMEs, including both those already exporting online and those currently considering it, and it makes a new set of recommendations for DBT and the industry as a whole.

The paper contains several encouraging findings that prove e-commerce can be a lever for boosting exports and therefore growth. For example, the new government should take note of the finding that just a 1 per cent increase in domestic digital connectivity could boost international trade by 1.5 per cent.

SMF argues for the development of “trade tech”, which encompasses anything that enables trade processes to be completed online, from AI tools to digital payment platforms. Indeed, 64 per cent of the SMEs surveyed said using e-commerce platforms had enabled them to reach overseas customers more easily, while 54 per cent said digitalising export documentation had helped them to save time and reduce costs. Yet, while “trade tech” solutions should have long-term benefits, the short-term costs are not insignificant, with 31 per cent of exporters and 35 per cent of those considering it citing initial investment as a barrier to adoption.

The report doesn’t just focus on “trade tech” as a way of empowering SMEs to trade though. It also highlights how emerging markets now provide more opportunities than the UK’s more established trading partners, with consumption in emerging economies growing 6-10 per cent per year, compared to below 1 per cent growth in most high-income countries.

The Prime Minister and his government’s commitment to rebuilding a positive trading relationship with the EU is to be welcomed, as is its commitment to the UK’s accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), as well as continuing negotiations with India and the Gulf Cooperation Agreement (GCC). Helping SMEs to make the most of these post-Brexit agreements should be a key activity for the government, including raising awareness of their benefits and providing education about how to navigate the rules within them.

The report also highlighted additional trade barriers for female entrepreneurs, who are a sizeable and significant demographic in the UK’s SME landscape. It cites 2020 data showing only 7 per cent of female-owned SMEs in the UK export, compared to 10 per cent in Canada.

SMF conducted a series of focus group sessions with female trade experts and exporters on the barriers they face. Its conclusions echo those of the Treasury-commissioned Alison Rose Review of Female Entrepreneurship in 2019, which found that nearly four in ten female SME decision-makers struggled to balance family obligations with business. Labour’s pledge to keep the previous government’s promise of expanding free childcare to all children aged under five is therefore welcome and more can be done in this area.

The trusted trade agenda encourages SMEs and female entrepreneurs to make the most of the international trade opportunities that are increasingly to be found online and in emerging markets. It should clearly be a part of the new government’s industrial strategy.

The Chartered Institute and the E-Commerce Trade Commission stand ready to support the government with this, ensuring its mission of growth can be achieved.

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