When it comes to national trade figures should we mind the gap?
YOU KNOW these “Whatever happened to…” columns that appear in newspapers and magazines now and then. They are usually commissioned whenever there is a lack of real news to fill a paper and some trainee journalist is allocated the task of finding out what happened to somebody that used to be famous but has since dropped out of the public eye. It’s often individuals who were big in the 60s, people like Clodagh Rogers, Peter Asher, or Mary Hopkin.
I’ve been pondering recently whether we need a “Whatever happened to” column to tell us whatever happened to the UK Balance of Payments (BoP) statistics which, back in the 60s, were monitored and reported on a monthly basis.
In those days, the UK was obsessed with ‘paying our way’ and so the value of all the UK’s exports were added up each month, and the value of all Britain’s imports were deducted from the total. The resulting monthly BoP figures always gathered headlines.
Britain saw itself as a trading nation and so it was thought that this statistic, our ‘trade gap’, really mattered - in those days it was more difficult to count our various ‘invisible exports’ from the likes of financial services.
This came to a head in 1970 when the then Labour Government headed by Harold Wilson was contesting a General Election and the trade gap figures were published showing that Britain had suddenly dipped into the red by a couple of hundred million pounds.
The reason apparently was that British Airways had just bought a couple of Boeing 747 aircraft, and the cost of these were counted in that month. By the time this explanation was uncovered it was too late; the British public was spooked and Harold Wilson lost the election to Edward Heath.
So in that context it is somewhat surprising to note that hardly anybody has noticed that the UK has just posted the worst trade gap performance ever. A deficit not of a couple of hundred million pounds but a staggering £4.4bn in June – up from £2.7bn in May. British exports in June actually shrunk by 4.6% compared to the previous month – so much for the ‘export-led recovery’ that we are supposed to be experiencing.
Of course, as every schoolboy knows, this is all caused by globalisation, and the fact that we ‘don’t actually make anything’ in Britain anymore. Most manufacturing is now done in China, and so China is bound to have a positive Balance of Payments. Right?
Well wrong, actually. A report from China’s State Administration of Foreign Exchange reports that China’s BoP recorded a deficit in the second quarter of 2012 for the first time since 1998. More money was leaving China than was arriving.
According to The Economist the reason is that a significant number of China’s new rich have emigrated – 16% have already gone and 44% intend to do so soon. Over 85% plan to send their children abroad for their education, and one third own assets abroad.
China’s rich are choosing where possible to move their wealth to ‘safer’ shores. And the UK, particularly London, is seen as a safe location, not just for the Chinese, but also for the rich from other dodgy places such as the Middle East and Russia.
So maybe that’s why we no longer have to really worry about the Balance of Payments anymore; the Trade Gap seems to be largely irrelevant.
It seems it’s not where the money is made that counts, it is where it is counted.