Brexit: Free trade deals will have limited benefits for UK, warns Philip Hammond

‘Much of our trade with the world is service trade, where free trade agreements won’t make any particular difference,’ says Chancellor

Prime Minister Theresa May and husband Philip, followed by Chancellor Philip Hammond, arrives in Hamburg for the G20 leaders' summit (PA)

Philip Hammond has said the global trade deals promised by Theresa May after Brexit will make a limited difference to the British economy, exposing cabinet splits over the European Union.

Speaking at the G20 in Hamburg yesterday, Mr Hammond said the deals touted by Brexiteers as the answer to any hit from EU withdrawal “won’t make any particular difference” to the unusually large portion of Britain’s exports that come from services rather than physical goods.

The Chancellor is attending the summit with the Prime Minister who hours earlier hailed the deals that Mr Hammond’s cabinet colleague Liam Fox is seeking as central to her Brexit plans.

Mr Fox, the International Trade Secretary, has said he will start trade-deal talks with the United States this month in order to make sure one is ready to go by the end of Brexit. Mr Fox said earlier this year he was also keen on a deal with Australia, while his team has made around three dozen trips abroad to sniff out new post-EU treaties.

Mr Hammond also said that a call from the Confederation of British Industry for Britain to remain in the single market and customs union after withdrawal – at odds with Brexit Secretary David Davis’s approach – was “helpful”, though he said its request was unlikely to be “politically” or “legally” possible.

He added that taking advantage of such deals proposed by Ms May and Mr Fox would take a long time and would require a painfully slow reorientation of the British economy.

“Obviously we do a large amount of trade outside the EU at the moment, so we have a trade base which works without special agreements or free trade arrangements,” Mr Hammond told Bloomberg and Reuters.

“Much of our trade with the world is service trade, where free trade agreements won’t make any particular difference.

“But clearly there is potential to expand our goods trade with the rest of the world. History teaches us, though, that this will be a process, it will not be a sudden change. We will have to negotiate agreements, those agreements will no doubt have implementation periods.

“Then of course if your business is in complex goods, consumer goods, intermediate products going into supply chains, you don’t just start selling on day one, you have to build the market. This is a process and it will take time.”

Around 40 per cent of Britain’s exports are services, with 60 per cent goods – an unusually higher proportion of services than most other countries.

As well as striking a different note from the Prime Minister, the Chancellor’s views put him at odds with leading Tory Brexiteers, who have argued that signing trade deals around the world could underpin Britain’s prosperity post-EU.

During the EU referendum campaign future Brexit Secretary David Davis appeared unaware of how trade deals with the EU worked – calling for a UK-Germany accord. Germany is a member of the EU, however, and does not sign individual trade deals.

Mr Hammond continued: “The thing that I remind my colleagues is that if we lose access to our European markets, that will be an instant effect, overnight, and to people who are looking to us to protect jobs, economic growth, living standards, they won’t thank us if we deliver them an instant hit with only a longer term, slowly building benefit to compensate. That’s the concern that we have to have in our minds.”

The Chancellor’s comments came on the first full day of the G20 summit in Hamburg, where Ms May held bilateral talks with Chinese President Xi Jinping over North Korea and steel dumping. She told leaders that “not only do we have to talk the language of free and fair trade, we need to act on it too“ – and suggested holding a global forum on steel overproduction before the end of the year.

After a customary photo opportunity, the G20 leaders met for a working lunch where they were served smoked fished and chilled soup followed by chicken fricassee, crayfish, and black rice.

Donald Trump is said to have folded his arms and adopted a “face like thunder” while Xi Jinping spoke about his trade policy, according to a Western diplomat who witnessed the closed session.

Diplomats said that at one point French President Emmanuel Macron tried to explain trade policy to Mr Trump, holding up his iPhone as a prop to illustrate import and export deficits between China and the US.

The French premier ended his appeal by warning that the rise of nationalism could lead to war – an apparent reference to Marine Le Pen, who Mr Trump expressed support for.

One lighter moment apparently occurred when Canadian Prime Minister Justin Trudeau helped to fix “a repeated technical failure” of the translation system and headsets that leaders used to understand each other.

Jean-Claude Juncker, President of the European Commission, was reportedly one of the victims of this fault – leaving him stranded on the floor while the problem was addressed. A Western diplomat present at the meeting said Mr Trudeau showed Mr Juncker which button to press to activate the system.

Mr Hammond’s G20 intervention came as David Davis hosted senior figures at Chevening House in Kent to assuage business and industry fears over leaving the European Union.

Figures including the heads of the manufacturers’ organisation EEF and the Federation of Small Businesses were entertained at the grace-and-favour country residence which Mr Davis shares with Boris Johnson and Liam Fox.

Today at the G20 summit Ms May is expected to meet with Mr Trump himself, where the pair will address the situation in North Korea, progress on a post-Brexit trade agreement, and the Paris Agreement on climate change. Ms May is also expected to meet with Japanese Prime Minister Shinzo Abe before her planned return to the UK by RAF jet on Saturday evening.