COVID-19 clearly has heightened a deep sense of uncertainty in the global economy. Global growth has been painfully stalled by a crisis from which it will take great determination to recover. Policymakers are inevitably turned inwards to the profound challenge of protecting life and health. But they also need to be thinking beyond the crisis. Here trade becomes vital because it is one of the mechanisms by which the global economy will rebound.
Stuart Rowley is vice president and president, Ford of Europe.
The pandemic already has had a dramatic impact on global trade flows, with an expected drop in EU exports of nearly 16 per cent in 2020. This is greater than the global recession in 2008, and critically important for a market where trade accounts for a third of GDP. To counteract this, policymakers need to be reaching for every tool in the trade policy toolbox. That means both unilateral action to keep markets open and trade flowing, and partnerships for liberalisation wherever they can be built.
This is the context in which we have to set the vexed problem of an EU-UK trade agreement. Estimates suggest the UK could lose 1.5% of its GDP (€42bn) under a ‘no deal’ scenario; the EU, meanwhile, would lose 0.5% of its total GDP – just over €69bn. Negotiations are now fast running out of time, and it is absolutely vital that the two sides agree on a new tariff-free framework for trade. ‘No Deal’ would compound the economic pain and hobble the means of recovery, especially for the automotive industry. A deal both cushions some of the disruption of UK exit from the EU single market and ensures that when trade revives in 2021 it does not do so with the headwind of tariffs.
It is not only the EU-UK trade talks that are critical, of course. Swiftly ratifying the modernised EU-Mexico FTA and intensifying the existing FTA negotiations with New Zealand and Australia are important practical steps. Such agreements will be instrumental in increasing export opportunities and a return to sustainable growth, including the creation of jobs.
Take the Mexico deal as an example. Trade between EU and Mexico is already substantial, with €61 billion of goods (in 2018) and €17 billion of services (in 2018). It has been estimated that every €1 billion of EU exports under this agreement supports some 14,000 jobs in Europe. Provisionally applying the updated agreement will allow Mexico to continue diversifying its trade while creating new opportunities in the EU. Everything should be done to make it happen.
At Ford, we appreciate the scale of challenge for trade policymakers. Governments are being forced to juggle public health responsibilities at the same time as keeping the economy moving. This is an extremely demanding and delicate balancing act. However, this crisis has demonstrated just how intricately interlinked our countries and economies are. That is an insight both into our interdependence and into how to drive recovery. We urge governments across Europe to be bold, and to work to ensure that free trade is viewed as central to the task of making up the lost economic ground of this year.