How much do British cities trade with the world?
The Government can do more at home to expand export activities, starting with next week’s Spending Review.
The Government can do more at home to expand export activities, starting with next week’s Spending Review.
While much discussion has surrounded the potential impact of tariffs on trade with the USA, there is a bigger question about how much places trade with the world, and how this influences prosperity across the country. Some parts of the country do much better than others.
Of the UK’s estimated exports, 64.7 per cent are produced in cities.
But there is variation across cities in terms of how much they export. Figure 1 maps out the value of exports per 10,000 people in each city. Aberdeen has the highest volume of exports (mainly due to its oil and gas production), followed by Oxford and London. At the opposite end of the spectrum, Barnsley has the lowest volume, followed by Doncaster and Birkenhead.
And there is a geography to this pattern. The top performers tend to be in the Greater South East (although even here, coastal cities tend to perform less well). Meanwhile most cities and large towns in the North of England perform poorly, with only Sunderland making it into the top 15 (and this is likely to be an overestimate as the stats assign all car exports to Sunderland, whereas in practice there are other parts of the country that contribute to its production).
How much a city exports is important because it influences how productive it is, which in turn determines wages. Exporting companies tend to be both more productive and have greater scope for productivity growth. And so it is no surprise that Figure 2 shows that those places that export more tend to have higher output per worker.
The chart also underlines once again the underperformance of Britain’s largest cities. In principle their size should give them an advantage in attracting the most highly-skilled exporting activities. But all find themselves close to the bottom left of the figure.
This weighs heavily on overall UK economic performance – having a large underperforming place has a much bigger impact on national prosperity than a small underperforming one.
A clear difference in the performance of places emerges when splitting exports by goods and services. Figure 3 breaks down the trade quantities for cities of different sizes by the two categories.
Goods exports are largely consistent across all cities. The export success of most cities has been determined by their ability to grow service exporting activities. And given that the UK economy is likely to continue to specialise in these activities, the future success of places is likely to be ever more shaped by their ability to export services.
Once again, given the inherent benefits that large cities should offer this type of activity, there is much scope to improve the performance of large cities in particular.
Recent policy has also understandably focused on trying to limit the impact of a trade war. The Industrial Strategy, expected later this month, is an opportunity to shift this focus towards increasing exporting activity.
Last year’s Industrial Strategy Green Paper showed the Government to be alive to this. It identified eight sectors of focus in part because of their propensity to export. And it also highlighted the underperformance of big cities.
A successful Industrial Strategy will need to bring these two things together, recognising that large cities like Birmingham and Manchester are far behind their export potential, and that growing the UK’s export base is dependent on these cities becoming more attractive places to do business.
But warm words won’t be enough. They will need to be backed up with public investment. This is where the last two large strategies – the 2018 Industrial Strategy and the 2022 Levelling Up White Paper fell down – they had very little subsequent policy action. The Government allocated funding for yesterday’s announcements on transport investments. All eyes will be on whether the Spending Review next week does the same. It is what the Chancellor will (and won’t say) that will give the strongest indication as to how serious the Government is about its Industrial Strategy, and what chance policy has to boost overall UK export performance.
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