The UK’s professional services industries are now more exposed to ‘trade shocks’ than manufacturers as a result of the changing nature of international trade, according to new research from the Resolution Foundation.
In the report, titled ‘Decent exposure: An overview of how Britain’s exposure to trade has changed’, the foundation explored how the UK is exposed to changing trade patterns and how this affects our living standards.
Trade shocks
Trade shocks, including Russia’s invasion of Ukraine, Houthi rebel attacks on Red Sea shipping and export controls, have hit international supply chains in recent years.
While discussions have tended to focus on manufacturing jobs and the ‘harm’ caused to workers by a surge in imports from developing nations like China, less attention has been given to the risks posed to workers by demand shocks, notably in the professional service sector, says the report.
An “antiquated” and “manufacturing-centric” view of how trade affects the economy does not take into account how much the UK economy had changed over the last two decades, it adds.
Bankers not manufacturers
“Globalisation is often said to pose a threat to our living standards, as jobs and industries lose out to cheaper alternatives overseas. But while [that] threat has receded in recent decades, Britain faces new and emerging exposures to trade,” said Sophie Hale, principal economist at the Resolution Foundation.
“As we have become a more open and services-based economy, it is accountants and bankers rather than factory workers whose jobs are most exposed.
“We need to worry less about foreign factories replacing our own, and more about foreign firms no longer wanting our services.”
Tourism was a sector disproportionately hit by the Covid-19 pandemic, while the global financial crash hit demand for professional services.
In both instances, workers in both low- and high-paid service industries were more exposed to international trade shocks.
Manufacturing
Part of this process has been fuelled by the fact that there are fewer workers in the UK’s manufacturing industries, with the sector becoming more “import intensive”, while services became more focused on exports.
Workers across the pay scale have seen their jobs become more exposed to exports, with the number of sectors that are highly exposed to foreign demand expanding from 16 to 23 industries between 2000 and 2019.
The UK has also become more reliant on imports for its normal consumption, the report found, meaning that consumers are now more affected by sanctions, supply chain disruption and other restrictions on trade.
In 2005, a quarter of the value of goods and services consumed in the UK came from abroad. By 2019, this had risen to a third.
Lower-paid impacted
However, this is not a “bad thing per se”, the report argues, as it represents a diversification of supply chains and more choice for consumers, despite the additional risks.
The research does highlight, however, that lower income houses are particularly exposed to trade shocks through the goods and services they consume.
The rising cost of imported food and energy, both of which have been hit by supply chain disruptions over the last year, has played a role in this, with 12% of poorer families’ (non-housing) spending going on these imported essentials, compared to just 8% of richer households.