The Effect of Brexit on Romanian Foreign Trade
Over the last few years, the United Kingdom has been Romania’s most important foreign trade partner with whom we have managed to record a significant trade surplus. The island economy’s exit from the community bloc and the establishment of barriers in the trading of goods, even non-tariff barriers (the granting of zero customs duties was finally recorded during negotiations), will affect the trade balance of our country.
In 2019, for which final data is certified, the UK was the fifth partner of Romania in terms of exports (3.7% share of the total), after Germany (22.4%), Italy (11.3%), France (6.9%) and Hungary (4.8%), but ahead of Poland, Bulgaria (3.5% each), Turkey (3.2%), the Czech Republic and the Netherlands (3.1% each). By imports, the United Kingdom ranked only 17th among the countries of origin, with only 1.9%, somewhere between Kazakhstan (also 1.9%) and Greece (1.2%), very far from the top three with Germany (20.2%), Italy (9.1%) and Hungary (7%). That shows an unusual situation for us, who are used to having a deficit with most countries.
Data published by the INS since 2016 shows that Romania has registered an increase in foreign goods trade with the United Kingdom, eventually worth about one billion euros annually (see table below). Starting even before the pandemic, the trade decline with the British has intensified sharply, so that our traditional surplus will be reduced to less than 60% of the usual one.
It should be noted that it was, in fact, the most important surplus in relation to a large EU economic power, as we can see from the comparison for 2019 with Germany (EUR -1,941 million), Italy (EUR -102.3 million) and France (EUR +517.1 million), the other major economies of the European continent. The best year for us in bilateral trade was 2018, when, against the background of significantly higher growth of exports compared to the previous year (+12.2%), the imports lagged behind in terms of growth (+3.2%), which placed the result to over EUR 1.1 billion net for Romania.
If we make a structural analysis, we can see that the most important share of exports belongs to products of high added value, with about a third of the total in the “machines and appliances, electrical equipment” segment (EUR 855.2 million), followed by “transport means and materials” (EUR 511.1 million) with about a fifth of the total, almost exclusively through the export of cars (EUR 464 million euros) and textiles and articles thereof (an eighth, respectively EUR 323.1 million).
Therefore, the United Kingdom’s exit from the single market can bring a significant loss for Romania, given the increased difficulty in materializing business opportunities and in the free movement of people, at a time when we are in recent years on a quite clear upward trend (the relocation of multinational companies’ headquarters from the UK started already in 2019).
In this context, there remains for us to find ways to keep our trade surplus with the UK as high as possible, at a time when we are sinking below the 4% of GDP threshold in the current account level and trying to get back with the economy for the current year as close as possible to the level reached in 2019.
On a larger level, Romania must undertake the structural reforms necessary to inch towards balancing its trade. Its secular deficit in trade is one of the results of the consistent and constant falling of the RON in relation to the EUR, with its attendant effects on the servicing of foreign-denominated debt and on the living standards of people paid in RON. The comparison with regional neighbors such as Hungary, which features small secular trade surpluses with deficits as the exception, not the rule, and Poland, which has periods of both, is instructive. This is especially frustrating as recent decades have been among the best in history for smaller, developing countries to advance their industry and grow by relying and economic partners with the capacity (economic and political) to register constant deficits in trade as a matter of course.