Why the growth agenda needs an international chapter

Jun Du, Incoming Managing Director, The Productivity Institute, and Professor of Economics, Aston Business School

The domestic growth plan taking shape around devolution, infrastructure and skills has strong foundations. Ten years of trade data suggest it would be strengthened by an explicit international economic strategy.

The Manchester model was international all along

The incoming government will bring a growth plan shaped by what worked in Manchester: devolution, infrastructure, skills and the ability to attract productive investment. Andy Burnham’s record in Manchester gives him an unusual advantage in making the case for place-based growth. But that record also contains a lesson that deserves wider attention.

Manchester became the most productive large English city outside London in part because it connected local capabilities to global capital. The city-region attracted 659 greenfield investment projects worth $13.7 billion between 2013 and 2025, supporting nearly 43,000 jobs, much of it channelled into the digital, scientific and professional sectors that drove its productivity growth. Devolution, infrastructure and universities mattered because they connected Manchester to the world. The lesson is that the Manchester model was international all along.

The missing chapter

What remains to be developed is an international economic strategy that connects trade, investment and supply chains to the domestic growth agenda. Ten years after Brexit, this chapter has not yet been written, and its absence helps explain why the post-Brexit debate has made less progress than it could.

The discussion has remained focused on tactical questions: what regulatory alignment is politically achievable, what the next EU summit can deliver. These are legitimate questions, but they are insufficient as a starting point. Without a strategic framework for the kind of international economic role the UK is seeking, negotiation risks becoming a zero-sum argument over concessions, and compromise becomes difficult to justify without a clear account of what it is designed to achieve.

What the evidence shows

Estimates vary, but the direction and broad scale of Brexit’s economic effect are no longer seriously in doubt. The most comprehensive study, by a team at the National Bureau of Economic Research, finds the UK economy roughly 6-8% smaller than it would have been. Business investment is 12-18% below counterfactual. NIESR, the Centre for European Reform and the OBR converge on similar magnitudes.

Still, the aggregate masks a structural pattern that no tactical deal can reverse. In research with Oleksandr Shepotylo and Yujie Shi analysing five years of product-level trade data, we find that more than half of the individual products previously sold by UK exporters into EU markets – 53.8% of all product lines – ceased to be traded. Total export value fell much less, because the largest and most established exporters had the scale to absorb the additional costs. The gap between variety and value effects captures the mechanism: firms with deep relationship-specific investments in bilateral production networks – certified lines, specialised logistics, trained workforces – held their volume rather than exit, because severing those relationships would have cost more than compliance. Smaller and more marginal trading relationships simply vanished. This is structural, not transitional, and the supply chains that survived are thinning. Meanwhile, UK firms redirected $29 billion of productive investment into the EU as a result of the Brexit referendum, an 86% increase.

Why tactical deals aren’t enough

The UK-EU summit this year is expected to make important steps forward to get two partners closer: a deal on food and animal health checks, an emissions trading linkage, a youth mobility scheme. The underlying structural challenge, however, requires a broader framework to address.

The evidence from firm-level research points to a straightforward conclusion: a domestic growth strategy cannot be separated from an international one. UK manufacturers rely on intermediate inputs from European supply chains that flow through regulatory architectures the UK chose to leave. The cost is felt at firm level, in lost export relationships and reduced employment. A Bristol firm that once exported radiators to twenty European markets has seen its EU share of sales fall from 40% to 5%. Each of the incoming government’s priorities – devolution, infrastructure, skills – has an international dimension that the evidence suggests is central to its success.

The EU relationship is critical, but it is only part of the strategic picture. The global trading environment has shifted considerably since 2016. The US has introduced broad tariffs. China’s industrial capacity has expanded. The EU itself faces competitiveness pressures from both directions. In this environment, there is a risk that policymaking defaults to short-term responses – securing critical inputs, reducing dependencies – without a longer-term framework for where the UK’s productive relationships should be strengthened. Protectionism that severs productive relationships without building new ones leaves a middle power with fewer options, not more.

The case for deeper integration

There is a constructive case for closer UK-EU economic integration that goes beyond either side making concessions. Our research shows that the sectors where UK-EU supply chain relationships proved most resilient against Brexit frictions – pharmaceuticals, chemicals, automotive – are precisely those where mutual dependence runs deepest. EU supply chains in these industries are weaker without deep UK participation, and European competitiveness is losing ground at the moment it can least afford to. A partnership built on these foundations would strengthen both sides.

The destination this points toward is for the UK to become Europe’s indispensable partner in production, research and services, while using its financial, institutional and diaspora networks to deepen relationships with the economies whose growth will define the next two decades. This is a programme for making the UK economically competitive and internationally connected, built on evidence about where productive relationships create mutual value.

Applying the method at national scale

Manchester’s experience offers the method. Identify the capabilities of a place, invest in the institutions that support them, and connect them deliberately to international capital, knowledge and markets. The opportunity now is to apply that method at national scale – connecting the UK’s domestic growth ambitions to the international relationships on which their success depends.

To read more of Jun Du’s research on the role of international trade, investment and supply chains in driving productivity and growth, see: