Small businesses stand to benefit from post-Brexit trade deals – but they’re not yet export-ready

Brexit saw the responsibility for trade policy restored to the UK 

One of the ways that UK policy since Brexit has most obviously and significantly changed is in the area of trade. The impact of Brexit on UK exports to the EU has been one of the recurring points of contention since the UK left. Although much of what has been said and written on the topic has generated mostly heat and little light.  

Brexit was a long-term decision and trade was merely one factor in the debate. However, as this post aims to convey, there are potential long-term exporting gains up for grabs for UK small-and-medium-sized enterprises (SME) if they can be seized. One particular opportunity is presented by  the UK’s accession to the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP). Consequently, given the choice to leave the EU, it seems prudent to be dubious about claims as to the merits and demerits of Brexit from short-term trade data fluctuations – which is what much of the debate has seemingly revolved around to date.  

Nevertheless, becoming tentatively discernible is evidence that some SMEs, particularly at the micro-end of the spectrum, have stopped exporting goods to customers in the EU, at least for now. Although, it should be noted there is a wider decade long trend underway of a relative decline in the contribution of SMEs to the total value of UK goods exports. For example, between 2010 and 2020, there was a 10 percentage point drop in the proportion of the overall value of goods exports accounted for by SMEs from 40% to 30%. This implies some longer-term challenges around the exporting capabilities and capacity of UK goods producing and selling SMEs that was becoming more and more evident while the UK was still in the EU. A point this post will come back to later on. In addition, what may also just be emerging from the data, is that the negative impact of Brexit on UK goods exports to the EU is, overall, not as great as many suggested it would be.  

However, in contrast to the debate over the impacts on UK’s exports to the EU, what is much clearer is that outside the Common Commercial Policy, the Customs Union and the Internal Market, the UK has been able to negotiate over 70 trade arrangements with different countries and blocs. One post-EU gain has been the scope to better ensure such deals include good access terms in areas where the UK has particular comparative advantages, to use trade economist terminology. For instance, the UK – Japan preferential trade agreement (PTA) was initially rolled over from the EU – Japan Economic Partnership Agreement but then quickly renegotiated to expand some of its provisions, especially in the areas of digital trade (including e-commerce) and financial services. In addition, some entirely new agreements have also been negotiated (e.g. with Australia and New Zealand). 

Amongst the more than 70 agreements, perhaps the most prominent one has been the UK’s accession to the CPTPP.  

The UK membership of the CPTPP makes access to growth markets in the Pacific region easier 

The 12 countries of the CPTPP account for nearly 15% of global GDP and have a combined population of well over 500 million people.  

The UK acceded to the CPTPP in December 2024 having started the process in 2021. This swiftness is in stark contrast to the EU’s quarter of a century effort to sign a deal with MERCOSUR, indicating a post-Brexit “fleetness of foot” by the UK.  

There are both potential immediate and longer-term benefits of becoming a CPTPP signatory. In the immediate term, the CPTPP provides for: 

• Preferential trading arrangements with Malaysia ($500 billion GDP), which expanded by 4.9% in 2024 and is expected to grow at 4.7% in 2025.
• Improved terms of access to some of the signatory economies, with 99% of current UK goods exports to participating states tariff free.
• Expanded digital access, with CPTPP’s advanced rules on digital services, e-commerce and data flows going further than almost all of the UK’s existing PTA’s.
• A single set of (generous) rules of origin terms that facilitate diagonal cumulation between members.
• Obligations to implement trade facilitation measures e.g. paperless trade with electronic customs processes.
• Commitments to reduce many of the technical barriers to trade. 

The long-term is where the CPTPP could prove most valuable to UK small businesses 

Much of the debate so far over the likely gains to be achieved from CPTPP has under-explored the longer-term dynamic benefits. This is despite the potential of CPTPP to boost the UK’s small business exports over the long-term in particular, by providing a “gateway” to the high-growth and high import-demand Asia-Pacific region and the opportunity to gain from the consequent process of positive cumulative feedback that can accrue from export expansion leading to business growth and  firm-level productivity improvements. 

Significant sources of future demand for goods and services and the ability of enterprises to react positively to the prospect of business opportunities is a facet of the trade issue that often gets less attention than reducing “trade costs”, despite its foundational importance. For instance, GDP in East Asia and the Pacific region increased by more than 4000% (in current dollar terms) between 1990 and 2023, with consumer demand becincreasingly important component of the growth of the economies in East Asia specifically. The direct potential demand benefits from CPTPP membership look likely to improve further as expansion of the arrangement looks probable with Indonesia’s (population 275 million) recent application to join. 

Asia more broadly is expected to account for around 42% of global output by 2031. By 2030, Asia has been forecast to have consumption levels some $10 trillion higher than in 2020. Further, Asia has a median age of 32 years, indicating a population that will remain larger and consuming for longer compared to the EU, where the median age is 44.5 years. CPTPP could be helpful here too. If UK SMEs can get a foothold in CPTPP markets for example, it is likely to make it easier for them to enter other Asian markets outside the treaty as individual UK SMEs become more familiar with exporting farther afield, learn to manage the various risks associated with exporting to newer markets, develop local networks and build good reputations.  

What could hold our small businesses back from fully capitalising on the CPTPP? 

The UK’s goods producing and selling SMEs have seemingly become less internationally competitive in the last decade, as their contribution to the UK’s goods exports has fallen back compared to their larger counterparts. This indication of a relative decline in competitiveness is also reflected in the fact that the UK performs worse than some of the most closely comparable CPTPP countries in the proportion of SMEs that export. For instance, the evidence indicates that around 9% of UK SMEs export compared to approximately 12% of Canadian ones.  

Consequently, given the growth that is expected in the Asia-Pacific region, the CPTPP has the potential to be a significant demand stimulus that could play an important role in reviving SME goods exporting, as British policymakers want. However, as we showed in our report “Small business, big world”, there are other elements that determine decisions by individual SMEs about whether to enter export markets or not beyond demand and “trade costs”, including a number of additional external environment factors. Equally importantly, there are also a slew of factors which are internal to firms that can be summarised as the capacities and capabilities of enterprises. These are big influences on a business’s characteristics i.e. its size and productivity levels which, along with sector, are closely linked to the likelihood of successfully exporting. Indeed, although more research would be needed to develop a proper understanding, these internal factors may be playing an important role in the problems that the comparative data on the proportion of SMEs that export and the evidence for a relative fall in the SME contribution to total goods exports both imply are present and persistent.  

The SMF has calculated that if 70,000 additional SMEs started exporting (approximately a 30% increase on current levels) perhaps as much as £9 billion could be added to the UK’s economy along with 152,000 jobs. Therefore, in order to have thriving UK export industries with SMEs playing a significant and growing part in them, those SMEs need to be capable of exporting i.e. “export ready”. More “export ready” SMEs will be well-placed to take advantage of PTAs like the CPTPP and the favourable demand conditions they “open the gates” to. However, most SMEs are not in such a position. Consequently, there are questions for entrepreneurs and owner-managers on the one hand and policymakers on the other about how more British SMEs could become “export ready”. 

Part of the answer could come from the UK’s trade policy. Too little of it focusses upon maximising the internal capacity and optimising the capabilities of SMEs. Further, the crossover with industrial policy concerns, where the aim is to seed and encourage particular high growth sectors to expand including through exporting, is obvious. However, the complementarities between trade and industrial policy it is currently under-exploited. There could be considerable benefits generated from a combined industrial and trade strategy which treated the challenges and opportunities around SME exporting in a more holistic manner.