The international trade secretary, Liz Truss, said it was a historic moment and in a way it was. For the first time since leaving the EU, Britain has struck a free trade deal and with the world’s third biggest economy – Japan – at that.
In practical terms, the agreement is small beer. On the government’s own estimates, the impact will be to boost the size of the UK economy by £1.5bn. Given that Britain’s annual output is about £2tn, that represents less than 0.1% of gross domestic product. What’s more, it will take time for the benefits to show up.
The reason the gains are so small is that the deal largely replicates the one already negotiated between Brussels and Tokyo, from which the UK benefited. While Truss was lauding the boost to exports, the deal mattered more for its symbolism than its direct economic effects.
There are pros and cons of running an independent trade policy. The upside is that it allows the UK to broker bespoke agreements that focus on sectors in which it is strong, such as financial services, rather than accept an EU-negotiated deal that might be more weighted to the needs of German carmakers or French farmers.
The downside is that the EU can offer access to a market of almost 450 million people rather than the UK’s 67 million, which gives Brussels greater clout. Truss said Britain’s financial sector would enjoy greater market access to Japan as a result of the deal but judging by the estimated size of the boost to UK exports and GDP the Japanese have not given away that much.
Still, news of the accord between London and Tokyo provided the government with a welcome – if temporary – distraction from the much more significant trade talks with the EU. Business liked the deal and welcomed it but made clear it would welcome a deal with Brussels even more.