This briefing note looks at the implications of the Government’s trade policy pivot to target the fast-growing Indo-Pacific region, following its unsuccessful attempt to deliver a trade deal with the US. It focuses on the impact of a possible trade deal with India on the UK economy as this is the most important part of the Government’s new strategy.
If a deal with India can be delivered, there are big gains available for UK exporters as trade costs tumble. Business services – a key UK sector – is particularly well placed to benefit from what is expected to be India’s meteoric rise to the world’s third-largest import market (behind the US and China). But the deal remains something of a gamble as these gains must be balanced against the risks from increased exposure of UK firms to unpredictable future competition.
- The Indo-Pacific pivot comprises joining CPTPP – the Pacific-region free trade area – and a bilateral deal with India. While CPTPP is larger in terms of total imports, the potential gains may be smaller than a deal with India as 95 per cent of trade to this group is already covered by existing agreements.
- A deal with India is expected to generate significant export gains, especially for manufacturing sectors, but the lack of complementarity between UK and Indian trade means the upsides may be more limited for the UK’s importers seeking to diversify their supply chains.
- Government analysis may undervalue the potential opportunities for UK business service exporters, as India’s import demand for business services is expected to triple by 2030. This relies on the agreement helping to correct underperforming of UK business services in India – accounting for just 1.7 per cent of India’s imports compared to 4 per cent for Malaysia and Singapore.
- A deal with India exposes UK business to much greater future uncertainty, compared to a US deal, as India’s export specialisms are changing at a far faster rate. In the past 10 years eight sectors have emerged as new comparative advantage compared to just one in the US. Any deal will increase the exposure of UK firms to unpredictable future competition from India.
- The Indo-Pacific strategy should be seen as a high-risk, high reward strategy to generate long-run export growth potential for UK firms.
For all research queries about this report, please contact Sophie Hale. For press queries, please contact the Resolution Foundation press office.