This session explored how the UK is repositioning itself within shifting global value chains, and what post-Brexit trade reorientation, geo-economic fragmentation and policy uncertainty mean for firm-level productivity, competitiveness, supply chains and workers.
The session positioned trade as central to the productivity debate, not as a separate sectoral issue but as a key channel through which firms access scale, competition, inputs, knowledge, customers and innovation opportunities. The opening remarks highlighted that the UK’s long-standing productivity challenge predates Brexit, but that Brexit and the Trade and Cooperation Agreement (TCA) provide an important setting for observing how firms respond to new trade frictions. Across the three papers, a consistent theme emerged: aggregate trade effects mask substantial variation beneath the surface, with outcomes depending on firm size, supply-chain depth, product characteristics, exposure to services, and financial resilience.
The first paper examined why some UK–EU trade relationships declined sharply after the TCA while others endured. The analysis focused on goods trade at detailed product level and argued that the productivity consequences of Brexit arise through three channels: reduced exporting opportunities and scale, disruption to European input and investment linkages, and pressure on firms to absorb costs rather than invest. Evidence presented suggested that import and export values have not recovered, while the loss of product variety has deepened, particularly for exports. The paper emphasised that policy needs to look beyond averages and identify which products, sectors and bilateral relationships are most exposed.
A key finding was that deeper mutual dependence within supply chains appears to cushion trade declines. Sectors such as pharmaceuticals, chemicals and automotive were used to illustrate how co-specialised bilateral investment can make relationships harder to unwind. However, this resilience may also conceal fragility: firms may continue trading by compressing margins and delaying investment, which protects current activity but may weaken future competitiveness. The discussion raised whether firm size and market power need to be separated more clearly from relationship depth in future research.
The second paper considered whether fiscal policy uncertainty affects labour productivity and investment. Using a news-based measure of fiscal policy uncertainty, French firm-level administrative data and sector-level evidence across 15 European economies, the paper found a negative association between uncertainty and both productivity and investment. These effects appeared strongest among smaller, financially constrained, exporting and relatively less productive firms. Leverage amplified the impact, suggesting that access to credit may support productivity in normal times but become a constraint when uncertainty rises.
The discussion focused on mechanisms: whether uncertainty is operating through firms’ own expectations, through banks’ lending behaviour, or through anticipated negative demand shocks. Participants also noted the need to distinguish reduced investment demand from reduced access to finance, and to understand whether there is an optimal level of leverage before debt becomes a drag on productivity-enhancing activity.
The third paper studied Brexit and the TCA as a policy-driven global value chain shock. It examined UK firms’ dependence on EU intermediate inputs in goods and services, linking trade exposure to firm and worker outcomes. The paper found a sharp fall in EU intermediate goods imports after 2021, broadly around 20%, while services imports were less affected. Firms exposed to supply-chain disruption experienced declines in employment and sales, with further deterioration after the TCA. Worker-level evidence was noisier but pointed to reduced hours and lower pay, particularly in lower-skilled occupations.
A distinctive contribution was the interaction between goods and services. Firms importing both from the EU reduced goods imports by less, suggesting they were less able to switch suppliers because goods and services were bundled together. However, these same firms experienced stronger negative effects on performance, implying that deeper integration can increase exposure to shocks even when it preserves trading relationships. Discussion again returned to the importance of distinguishing relationship-specific dependency from firm size, productivity and bargaining power.