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United States-United Kingdom International Trade

By Christine Parizo

The United Kingdom is the United States' fifth-largest export market and our seventh-largest import partner.1 With a GDP worth $2.62 trillion, the U.K. represents 4.4 percent of the world economy.2 In the second quarter of 2017, the U.K. economy grew 1.7 percent year over year, fueled by services and construction demand.3

Shared heritage and common values have helped make the U.S. and U.K. historically strong trading partners. And although the country's exit from the European Union is expected to bring with it a temporary increase in import-export trade uncertainty, the two countries are expected to remain so over the long run. The U.S. dollar-British pound (USD-GBP) exchange rate has traded within a one percentage point range from August 2016 to August 2017.4

 

Exporting to the U.K.

 

The U.S. shipped $55.29 billion in goods to the U.K. in 2016, down from $56.1 billion in 2015, according to the U.S. Census Bureau.5 Despite the slight decline, the U.S. Department of Commerce sees growth potential for companies operating in the garment and travel sectors, as well as e-commerce and electronically delivered services.6 Top categories for export include machinery, vehicles, precious stones and metals, electrical equipment, minerals, and pharmaceuticals.7 Additionally, U.S. businesses conduct a bustling agricultural, fish, and forestry trade with the U.K. Branded snack foods, grocery goods, and alcoholic beverages like beer and wine have also done very well in the U.K.8

 

Notably, post-Brexit uncertainty could curtail global investment and trade in the U.K. According to a World Economic Forum article written by financial service professionals, Brexit could cost the U.K. 7.5 percent of its GDP. Additionally, international trade with the U.K. may become more complex as the country continues the exit process from the EU.9 Uncertainty may weaken the pound, cause inflation, and result in less consumer spending.10 BBC news reports that the U.K. inflation rate is nearing a four-year high, up to 2.9 percent in May 2017 and above the Bank of England's 2 percent target.11

 

The U.K.'s population totals 65.6 million, up from 58.89 million in 2000. Its income per capita in 2016 was $42,390. This figure peaked in 2008 and is slightly lower than 2015.12 U.K. GDP growth is expected to slow due to inflation, and wage growth is expected to remain low.13

 

 

 

E-commerce is a growing segment for companies doing business in the U.K. Approximately 59 percent of Brits will research a product online before purchasing it offline, and 25 percent of all British consumers research purchases online only. U.K. consumers use many of the same social media sites as in the U.S., including Facebook, YouTube, and Twitter. The most popular types of e-commerce sites are general online retailers, price comparison sites, and department stores. Additionally, U.K. consumers are slowly adopting the Black Friday purchasing holiday, even though the preceding Thursday is not a holiday in the U.K.14

 

Importing from the U.K.

 

The U.K. is the seventh-largest source of imports for the U.S., totaling $54.27 billion in 2016. That number is down from $57.99 billion in 2015.15 The top goods categories imported by the U.S. in 2015 were cars, packaged medicaments, nucleic acids, and refined petroleum.16 The U.S. is the U.K.'s single largest export market. The British Chambers of Commerce advise U.K. companies to focus on advanced engineering, clean energy, creative and media, energy and power, and financial and professional services offerings.17 The U.S. imported $68.99 billion in services from the U.K. in 2015.18

 

The U.S. began talks with the U.K. on a post-Brexit trade agreement in July 2017. The idea is to ensure trade continuity. However, these are initial talks, with substantive negotiations set to begin after the U.K.'s formal exit from the EU in March 2019.19

 

Setting up for International Trade in the U.K.

 

U.S. companies wishing to set up business in the U.K. need to contact a solicitor (lawyer) to help them make the leap. There are six different ways to set up companies in the U.K. The solicitor can also assist with tax filings, visa guidance, and office location. Opening business banking accounts in the U.K. may be complex and could require all officers of the company to be present.20

 

U.S. foreign direct investment (FDI) in the U.K. reached $588 billion in 2014, representing 12 percent of U.S. FDI worldwide. About two-thirds of this investment went to holding companies and finance and insurance organizations.21

 

The World Bank's (WB's) Ease of Doing Business Index rates the U.K. 7th out of 190 countries. Some of the challenges cited by the WB include registering property (where the U.K. ranked 47), enforcing contracts (31), and trading across borders (28). The U.K. scores better at protecting minority investors (6), paying taxes (10), and resolving insolvency (13).22

 

Overall, the U.K. ranks 19th out of 130 countries in the WEF's Human Capital Index. It has a labor force participation rate of 62.7 percent. The tertiary-educated population, those that have completed the highest level of education including advanced degrees in medicine, numbers 13.4 million.23 The U.K. ranks 8th of 136 countries in the WEF's Global Enabling Trade Index.24

 

Cultural Considerations

 

There are numerous resources available for Americans that wish to do business in the U.K. While the two countries share a common language, terms and dialects may cause confusion and misunderstanding. Of note is that American communication styles may be seen as aggressive. The British are generally non-confrontational, diplomatic, and use humor in business situations. Being self-deprecating, rather than self-promotional, is preferred. The British still dress formally in dark blue and grey suits and appreciate being part of a team. Meetings often open with small talk, and it may take many meetings before a consensus is reached.25

 

The

Takeaway:

While Brexit creates uncertainty in the short term about the future of trade with the U.K., Britain remains a solid and friendly environment for U.S. business.

Christine Parazio - The Author

The Author

Christine Parizo

Christine Parizo is a professional writer specializing in business and technology. She's written for a variety of TechTarget sites, including searchSAP.com, searchSOA.com, and searchCloudApplications.com, as well as HPE's Infrastructure Insights and The Pulse of IT.

Sources

1. “Top Trading Partners – June 2017.” United States Census Bureau; https://www.census.gov/foreign-trade/statistics/highlights/top/top1706yr.html
2. “United Kingdom GDP,” Trading Economics; https://tradingeconomics.com/united-kingdom/gdp
3. “United Kingdom GDP Growth Rate,” Trading Economics; https://tradingeconomics.com/united-kingdom/gdp-growth
4. “XE Currency Charts: USD to GBP”, xe.com; http://www.xe.com/currencycharts/?from=USD&to=GBP&view=1Y
5. “Trade in Goods with United Kingdom,” United States Census Bureau; https://www.census.gov/foreign-trade/balance/c4120.html
6. “United Kingdom,” U.S. Department of Commerce; https://www.export.gov/article?id=United-Kingdom
7. “United Kingdom Imports by Category,” Trading Economics; https://tradingeconomics.com/united-kingdom/imports-by-category
8. “U.S.-U.K. Trade Facts,” U.S. Embassy & Consolates in the United Kingdom; https://uk.usembassy.gov/embassy-consulates/government-agencies/fas/trade-facts
9. “Brexit could be the best thing that happened to the European Union;” World Economic Forum. https://www.weforum.org/agenda/2017/04/brexit-european-union-negotiations
10. “Brexit could be the best thing that happened to the European Union;” World Economic Forum. https://www.weforum.org/agenda/2017/04/brexit-european-union-negotiations
11. “UK inflation rate at near four-year high,” BBC News; http://www.bbc.com/news/business-40259392
12. “United Kingdom.” World Bank; http://data.worldbank.org/country/united-kingdom?view=chart
13. “United Kingdom | Economic Forecasts | 2017-2020 Outlook.” Trading Economics; https://tradingeconomics.com/united-kingdom/forecast
14. “United Kingdom,” U.S. Department of Commerce; https://www.export.gov/article?id=United-Kingdom
15. “Trade in Goods with United Kingdom,” U.S. Census Bureau; https://www.census.gov/foreign-trade/balance/c4120.html
16. “What does the United States import from the United Kingdom?” Observatory of Economic Complexity; http://atlas.media.mit.edu/en/visualize/tree_map/hs92/import/usa/gbr/show/2015/
17. “United States of America,” Export Britain. http://exportbritain.org.uk/market-snapshots/united-states-of-america.html
18. “The UK trade and investment relationship with the United States of America.” Office for National Statistics; https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/articles/theuktradeandinvestmentrelationshipwiththeunitedstatesofamerica/2016
19. “US working on ‘major trade deal’ with UK, says Trump,” Financial Times; https://www.ft.com/content/6a7cd168-7148-11e7-aca6-c6bd07df1a3c
20. “How to Set up a London Office,” Inc.; https://www.inc.com/guides/2010/03/setting-up-london-office.html
21. “US-UK Trade and Foreign Investment,” Petersen Institute for International Economics; https://piie.com/research/piie-charts/us-uk-trade-and-foreign-investment
22. Doing Business, World Bank; http://www.doingbusiness.org/data/exploreeconomies/united-kingdom
23. “Human Capital Index 2016: United Kingdom,” World Economic Forum; http://reports.weforum.org/human-capital-report-2016/economies/#economy=GBR
24. “The Global Enabling Trade Report 2016,” World Economic Forum; http://reports.weforum.org/global-enabling-trade-report-2016/economy-profiles/#economy=GBR
25. “Top Tips on Great Britain,” World Business Culture; https://www.worldbusinessculture.com/country-profiles/great-britain/top-tips/

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