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Trade

Trade – a heavy dependence on the UK

Chapter summary

  • The trading relationship between Scotland and the rest of the UK is asymmetric. Scottish exports to the rest of the UK account for almost two-fifths of Scottish GDP.
  • Exports from the rest of the UK to Scotland account for just 4% of UK GDP. Scotland is highly dependent on the UK as a home for its goods.
  • Scottish exports to the rest of the UK account for a staggering 70% of all Scottish exports. It would be unwise to jeopardise Scotland’s largest export market, critical to employment and wealth.
  • While Scotland enjoys a balanced trading relationship with the rest of the world, as an independent country it would need to address a consistent £10-12bn deficit with the rest of the UK. At £5000 per household, this is a substantial figure.
  • Scotland’s trading relationship with the rest of the UK is vital. The rest of the UK is overwhelmingly the critical partner in Scottish trade.
  • The current arrangements allow unfettered trade through separate but similar and well harmonised legal systems as well as close cultural and economic ties. Secession from the UK would weaken these links and jeopardise trade.

Trade with the UK matters to Scotland, but less so to the UK

The trading relationship between Scotland and the rest of the UK is asymmetric. Scottish exports to the rest of the UK account for 39.1% of Scottish GDP. Exports from the rest of the UK to Scotland account for just 4% of the rest of the UK’s GDP.

Scotland is highly dependent on the rest of the UK as a home for its goods. The rest of the UK does not depend on Scotland.

While Scotland would have the protection of the World Trade Organisation, by separation it would make itself needlessly vulnerable to changes in the terms of the rest of the UK’s trade with it. Here, too, as in so many other fields, Scotland would not be in any useful sense independent: merely expensively and pointlessly separated.

Global tariffs are low and generally falling. If Scotland were admitted to the EU it would be part of the single market regulatory area. However, if Scotland were unable to adopt Sterling (see the earlier discussion), the implications for trade could be profound, for currency fluctuation would act as a significant barrier to trade.

Over time, Scotland and the rest of the UK would inevitably drift apart as the ties gradually weakened. This is a much more significant challenge for Scotland than for the rest of the UK. A separated Scotland would need to find new markets. The disruption of her existing pattern of trade would be fraught with difficulty. New markets do not appear overnight.

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Healthy exports would be critical to Scotland as it tries to find its way in the world. The importance of imports to the rest of the UK is currently more than twice as significant as exports to every other country in the world combined. The importance to Scotland of the rest of the UK has if anything been increasing. This is demonstrated in the chart below.

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Scottish exports to the rest of the UK account for a staggering 70% of all Scottish exports. It would be unwise to jeopardise Scotland’s largest export market, which is so critical to employment and the wealth of the nation.

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In conclusion, Scotland’s trading relationship with the rest of the UK is vital. The rest of the UK is overwhelmingly the critical partner in Scottish trade. The current arrangements allow unfettered trade through separate but similar and well harmonised legal systems as well as close cultural and economic ties. A move to secede from the UK clearly weakens these links and jeopardises trade. Scotland is much more dependent on trade with the rest of the UK than the other way about, undermining the Scottish negotiating position both during the transition period and afterwards.

The few sectors driving the Scottish economy

The chart below highlights the importance of various industry sectors to the Scottish economy. Well over half the Scottish economy is accounted for by two sectors, Government and financial services. The former is a function of spending choices but dependent on tax receipts. The latter, as we have shown in the section on banking, is highly vulnerable should Scotland separate from the UK.

Public spending in Scotland is £65bn, or more than half the Scottish GDP of £129bn. Given the sheer scale of the Scottish fiscal deficit, it is improbable that a separated Scotland could expand state spending further, and impossible that it could do so prudently. Public-sector pump-priming is not an option. Similarly, financial services may emigrate from Scotland in the aftermath of separation.

Less than half of the economy would be left to try to provide growth. However, building new revenue- streams simply cannot be achieved overnight. While Scotland has undoubted strengths in other key sectors, notably oil services, drinks and foodstuffs, tourism and elements of engineering, the base is not particularly broad. It is narrower than the UK as a whole. Growing one’s way out of a fiscal hole deepened by oil uncertainty would be a long, slow, arduous and not necessarily successful process.

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on September 16 | by

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