Is the UK’s new trade deal with Japan really something to get excited about?

Is the UK’s “first major trade deal as an independent trading nation”, as the Department for International Trade described the deal with Japan announced on Friday morning, a cause for celebration?

Is it a vindication of the economic merits of Brexit and a symbol of the clout of “global Britain”? The short answer is no.  

The full details have not yet been released but it’s already clear the agreement largely replicates the contents of the tariff-reducing deal that the European Union concluded with Japan in 2018. 

For UK firms trading with Japan this is treading water, not some kind of surge forward into unexplored oceans. 

And while the Trade department’s press release highlights potential gains to the UK economy of £1.5bn over the long term, that represents less than 0.1 per cent of our economy. 

Moreover, this is a gain relative to a future in which the UK had no trade deal with Japan, not relative to the UK’s current position as a participant in the EU-Japan deal.

But it’s worth acknowledging that it could have been worse.

There was a stage when it looked like the UK might not be able to roll over that EU-Japan deal – or that Tokyo would use its leverage of UK ministers’ self-imposed race against the clock to extract considerably more favourable terms for them at the expense of British industry and agricultural producers.

If progress is ultra-flexibly defined as not going backwards this agreement just about qualifies.

Yet we really need to focus on the bigger picture.

According to official UK data, Britain’s total trade with Japan in 2018 amounted to £29bn (£14bn of exports and £15bn of imports).

Our trade with the rest of the European Union, by contrast, was £650bn (£290bn of exports and £360bn of imports).

So as a trading partner the EU is simply twenty times more important.

And when one considers that 0.1 per cent of GDP support from this Japan trade deal don’t forget that the Government’s own internal modellers who came up with that estimate also estimate that the long term damage of a no deal Brexit would be around 7.5 per cent of GDP.

And a no-deal Brexit slouched alarming closer this week with Boris Johnson’s government presentation of legislation that would effectively tear up our legally-binding commitments to the European Union over Northern Ireland in the Withdrawal Agreement.

If the government is serious about concluding a free trade deal with the EU by the end of the year, as ministers insist, this is a bizarre way of showing it, to put it mildly. Many in Europe wonder if this was actually an attempt by Downing Street to sabotage those talks by provoking the EU to walk away.

Whatever the truth, the likelihood of the UK falling out of the coverage of the EU’s tariff-free customs union with no agreement to replace it has plainly increased sharply this week.

This trade deal with Japan is, in some ways, a relief. But the simple fact is that it’s not big in Japan and it shouldn’t be treated as big here either from an economic perspective. There are far larger matters at stake.