Globalisation, international trade and the coronavirus.

Last month Tesla finished the first Model 3 cars produced in its new Chinese factory in Shanghai and their production provides useful examples of economic theory in action.

International trade theory suggests that producers making complex products often make them initially close to home, e.g. the Tesla factories in Nevada and New York state, where there are the designers and engineers on hand to deal with production difficulties. Another example is Dyson shifting its manufacturing plant from the UK to Malaysia while maintaining its research and design facilities in the UK. Once the product is refined and the production process is running smoothly, it is possible to outsource production to areas of the world where costs are lower in order to take advantages of those areas’ comparative advantage.

The Tesla factory is the first wholly foreign-owned car plant in China and, from starting construction to producing the first finished cars took less than a year – significantly faster than such a product in the UK. However it is worth noting that the initial negotiations according to Elon Musk, took “years”.

The Chinese-made cars are cheaper than imported models ($50,000 compared to $63,000) and, as production increases and more local components are used, costs will fall further, possibly as much as 20%.

Apart from making it easier to tap the potential in the Chinese market, the ability to produce in China means that the factory’s output would avoid possible tariffs on US exports. In the future, cars might be exported from China to consumers in the UK who would benefit from lower prices.

The above example shows the benefits of international trade and globalisation. However news this week of the effects of the coronavirus shows the reverse situation highlighting the dangers of increased interdependence through global supply chains. Jaguar Land Rover has announced that it could run out of components from China within two weeks. Apple has similarly announced that its iPhone supplies are suffering because of the problems in China where Foxconn workers, the business which assembles phones, have been told to stay away from work because of the virus. In addition, as the Chinese economy has grown, and it now accounts for 16% of world GDP, as well as its role in world supply, its slowdown also impacts on demand elsewhere in the world.

Should economists be worried about the coronavirus?

The coronavirus has been in the news this weekend with the 35,000 people in different countries being affected. In addition, the business pages of many papers are expressing concern about the implications the coronavirus might have on Western economies – what economists refer to as an economic shock – with the Federal Reserve Bank talking of a risk to the global economy. This is because of the increasing importance of China in the world today. Not only is it the second largest economy, accounting for 19.7% of world GDP, it also demands a staggering 69% of world mineral production. 20% of world tourism spending is linked to China, both inward and outward, with the Japanese economy predicted to experience a £17.3bn cost from the virus. Cathay Pacific, a Hong Kong based airline, has asked 27,000 staff to take a three-week unpaid holiday while, in the UK last year 415,000 visitors from China spent £714 million in UK hotels, shops, restaurants, etc. One estimate in the newspapers suggests every 22 visitors from China to the UK creates an additional job.

China now accounts for 13% of world trade. Wuhan, the region where the outbreak started, is prominent in world car production. Honda, Toyota and General Motors have factories there and many of these are currently closed to prevent workers travelling to work and catching or spreading the disease. Similarly, many shops are closed and Chinese branches of Western stores, particularly luxury products, such as Burberry, Estee Lauder and Canadian Goose have talked of falling sales in China as Chinese citizens stop shopping for such luxuries and the number of foreign tourists to China drops significantly. Ralph Lauren has closed 55 of its 110 stores in China. China is the world’s largest oil importer, daily consuming as much as the UK,  France, Germany, Italy, Spain, Japan and South Korea, and, as China’s economy slows oil prices have dropped with analysts comparing it to the fall as a result of the financial crisis

Apart from direct effects, China factories have a major impact on world supply chains, assembling products and producing components from everything from cars to iPhones. Fiat Chrysler, the Italian-American carmaker, has said that it could shut one of its plants on the Continent if the disruption continues while Sony and Nintendo have both talked of unavoidable delays in the supply of some of their products.

As Chinese production slows and both its exports and imports decrease, world growth will fall. Whether this is a temporary blip or a permanent drop will depend on how serious the epidemic turns out to be. However there is an upside – in China demand for  contraceptives and  Netflix subscriptions are both booming.

Brexit – The Sequel

The UK has been on a long journey since voting to leave the EU three and a half years ago. According to some, we are in the departure lounge waiting to start an exciting voyage while, for others, we are standing on the cliff edge. So what is in store for the UK?

By Monday, our Members of the European Parliament will have lost their jobs and there will be a new 50p commemorative coin but little else will have changed since we will be in the transition period, currently scheduled to finish at the end of the year. This means that for eleven months we will be keeping to EU rules, following its treaties, and paying into and receiving grants from the EU budget. During this period, we will be negotiating with the EU to establish the trading arrangements which will come into effect in 2021.

The Government will have some difficult decisions to make – many leavers are looking forward to being free from the EU’s regulations while many areas of the country which switched from Labour to Tory in the recent election rely on industries being able to export to the EU and therefore need a deal which agrees an alignment between UK and EU standards. Parts of these areas are dependent on the motor industry which did not enjoy a good 2019. Car production in the UK fell last year by 14% down to 1.3 million, the lowest level for ten years and the third consecutive year of decline. The industry has put this down to a move away from diesel cars and falling demand in some of our major markets, such as China. Many plants are producing significantly below capacity, e.g.  the Vauxhall Astra plant in Ellesmere Port can produce almost 200,000 cars a year but, last year, produced only 61,000. The EU accounts for 55% of our motor exports and, last year, their demand fell 11%. A deal which limits our exports of cars to the EU will have significant consequences and a Government paper suggested that the North West, the North East and the West Midlands would see a fall in GDP of 16% if no deal is reached.

The motor industry is not the only one where the nature of the deal (if one is agreed) will be significant. The fishing industry, with annual exports to the EU of almost £1 billion, is pressing the Government to limit the access of EU boats to UK waters while the financial sector, which exports £26 billion to the EU annually, is keen to maintain its access to EU financial markets. There is comment in the newspapers about bankers being sacrificed for fishermen and it will be hard for the Government to satisfy both parties.

The service sector is becoming increasing concerned about talk of a Canada style agreement (CETA – Comprehensive Economic and Trade Agreement) because that agreement between the EU and Canada concentrated largely on goods, while services make up 80% of UK GDP. It is not clear that the EU will be wiling to offer the same agreement to the UK as to Canada. Because we are geographically much closer to the EU than Canada is, the EU is more concerned about the UK being used a backdoor into the EU by third parties. They are also keen to ensure that the UK observes the same regulatory standards as the EU so we are not able to undercut EU producers because, for example, of generous assistance provided by the UK Government or weaker environmental standards.

Finally, remember that took the EU and Canada seven years to agree CETA and we have eleven months.

Does the balance of payments matter?

In the last four years, the deficit on the current account has averaged between 4% and 5%, but during that period  we had a six month period when the deficit on goods and services (a key part of the current account) averaged 7% of UK GDP while predictions are that there was a surplus for the last six months of 2019. The last time this happened was over 20 years ago. For 2019 as a whole we might be talking about a deficit averaging 1.5% of GDP. However, there has been a major change in the composition of our balance of payments;  our manufacturing sector has declined significantly and its contribution to the balance of payments has been negative. Despite falls in the value of sterling particularly in 2008 and after the Brexit vote, manufacturing failed to thrive as predicted, even after the “J curve effect” which suggests a time-lag between a fall in the value of the currency and an improvement in the balance of payments. Possibly this was because of low UK productivity, poor growth among our main trading partners, limiting their demand for our goods, or  because UK producers opted to keep prices the same in foreign currency, therefore increasing their profits. Fortunately, the manufacturing deficit has been partially offset by our service industries where we have a comparative advantage.

Both The Times and Financial Times have printed articles about the decline in the importance of the balance of payments. Their articles refer to the time when newspapers published the balance of payments figures on the front page and the data would be prominent on the television news. Economics students would rank the balance of payments as one of the country’s main economic objectives while today, they struggle to remember what comes after low inflation, low unemployment and high GDP growth. One reason for the decline in the attention given to the balance of payments is that the figures are recognised as sometimes being inaccurate and also likely to be influenced by special factors, such as the way the deficit increased in the run-up to Brexit because businesses built up stocks in case of disruption while, more recently, a partial cause of the improvement in the balance of payments has been the run down in these stocks.

So does a persistent deficit matter? A sustained deficit implies a leakage from the circular flow of income, has implications for living standards and might be a sign that the economy is underperforming since it is selling few exports and buying too many imports.  It might also lower the exchange rate with implications for inflation and living standards since imports will become more expensive.

If a deficit is driven by over-consumption, possibly financed by high levels of debt and inadequate savings, then a persistent balance of payments gap is evidence of serious distortions within the economy. (A deficit can be good if a developing country is importing capital and new technology). According to the IMF “When a country runs a current account deficit, it is building up liabilities to the rest of the world that are financed by flows in the financial account. Eventually, these need to be paid back.”  Their view comes from the way a current account deficit must be financed which involves a surplus on the financial account. This means  that overseas individuals, banks and businesses will be carrying out activities which bring money into the UK. These would include foreign millionaires buying property in London, either to rent or live in, foreigners buying UK company shares or putting money into UK banks or foreign companies building new factories in the UK.  The UK is fortunate that it is an attractive place for such transactions. We have a sound legal and financial system, clear property rights and, currently,  membership of the EU single market, making us attractive to non-EU businesses so we have been able to finance the deficit without difficulty.

If our attractiveness falls, then the situation could change, with depreciating sterling, since the demand for it from foreigners buying UK exports or depositing money in the UK will be smaller than its supply on the foreign exchange market as we try to buy imports or higher interest rates to attract money from overseas with undesirable consequences for the domestic economy.







The WTO Today

The World Trade Organisation was established in January, 1995 to promote free trade and support the generally-held view that such trade provides benefits in the form of greater choice and lower prices, stimulates economic growth, raises incomes and promotes world peace. Since the WTO was founded, world trade has grown from 41% of world GDP to 58% in 2017. Any country wishing to join the WTO must accept all its rules, particularly the  ‘Most Favoured Nation’ agreement whereby countries  must apply the same tariff to similar goods, irrespective of the exporting country, unless there is a free trade agreement between the importing and exporting countries. Thus if we leave the EU without an agreement, the EU will apply the same 10% tariff on UK car exports into the EU as it does to those coming in from other non-EU countries. Similarly, if the UK government were to announce a unilateral move to zero tariffs on agricultural products from the EU, without a trade deal, we could not levy tariffs on agricultural goods from elsewhere.

The WTO also acts as a forum for negotiations to reduce tariff barriers,  provides technical assistance for developing countries and  helps to resolve trade disputes between its 164 members with judges appointed to deal with disputes. Its role in negotiations has become less important because the size of the body makes agreement difficult but dispute resolution has become increasingly important, with the WTO being the place countries turn to after negotiations have failed. If, after investigation and consultation, the WTO court believes a country has broken its rules, it can authorise retaliatory tariffs. For example, the USA has been in dispute with the EU over subsidies to Airbus which made it more difficult for Boeing to compete and the EU was found to have acted unfairly.  The USA has also had wins in the WTO court against China which it accused of stealing intellectual property and subsidising domestic industries. However it has also lost cases in the WTO court, particularly over its use of tariffs to protect US producers against competition which it regards as unfair. The loser in a case must change their practices or the WTO can allow the victim country to impose retaliatory tariffs to cover the damage inflicted.

However, at present, the WTO is in crisis. It has seven judges who adjudicate on cases referred to it and must have a minimum of three in every hearing. Because it has been unhappy with some recent decisions, the USA has refused to agree the appointment of replacement judges to replace those who have retired and, from last month, the WTO court only has one judge (ironically from China) so does not have enough judges to hear cases (although two who retired in December are staying on to complete cases already started).

Even though many countries, apart from the USA,  are not happy with the WTO, with complaints about the its system for settling trade disputes which they say takes too long and the WTO’s inability  to  deal with China with its mixture capitalism and state control, there is a fear, particularly among smaller countries, that if the WTO ceases to function, power will revert to larger countries such as the USA and China which will have the power to bully smaller countries into accepting unfair trade deals.

The Next Budget

Possibly, the Chancellor of the Exchequer, Sajid Javid, spent New Year’s Day in No 11 Downing Street, working on the budget which Boris wants ready for February when the UK has left the EU. If so, he will be aware that preparing the budget will be tricky because no one knows what the terms of the UK’s future trading relationship with the EU will be. Although Boris talked of a deal being signed in a year, business leaders and civil servants in the UK and many in the EU feel that this was unrealistic, given how long trade deals take to negotiate and the UK’s failure to reach the target for the number of trade deals promised during the referendum campaign. One can argue that, given the increase in protectionism in recent years, a close deal is vital, especially since the potential new markets are relatively small, compared to our trade with the EU.

Philosophically, the government has a potential  problem with the right of the Conservative Party favouring a free market approach with tax cuts and reduced regulations, while many new MPs elected in former Labour seats are looking for measures to help their constituencies which contained new Conservative voters, won over by the promise of Brexit, but whose jobs are at risk from increased competition from manufacturing companies in Asia, the loss of exports to the EU and a possible UK slowdown after Brexit. Many of these areas, with significant aerospace, chemicals and food production industries, rely heavily on exports to the EU and have to meet EU rules and regulations. If the future trade deal did not allow such exports to continue and instead allowed the EU to impose tariffs and implement customs checks, the consequences for some areas would be significant. The Flintshire and Wrexham area has an Airbus factory and a thriving pharmaceuticals industry and 87% of all goods made are currently exported to Europe. Elsewhere, in Derby North, where there is a Rolls-Royce factory, over 25% of the economy is linked to sales to the EU.

There is general agreement that the UK has spent too little on both business and infrastructure investment and encouragement for businesses to do the former and a determination by the government to do the latter will help improve UK productivity – a major UK issue. Incentives to help people, particularly first-time buyers, buy housing are important but, just as important as increasing demand, is the need to increase supply, possibly by encouraging more building on brown field sites. Another major area of need is the level of skills in the workforce and the need to bring UK vocational training up to the standards of other countries.

Fortunately, there is scope to boost the economy since the new government has adopted looser fiscal rules than its predecessor. In 2016, then Chancellor George Osborne’s fiscal rule was to eliminate the deficit by 2019/20 which was relaxed by Philip Hammond, who moved the target to 2025. What the current government has promised was to ensure that they raised enough in tax revenue to cover day-to-day spending but would borrow to invest. However infrastructure, such as building new roads, schools and hospitals takes time and very few projects are ‘shovel-ready’. This is worrying since growth started to stagnate and the labour market weakened before the election but possibly, following the clear election result, businesses and consumers might become more confident and increase their spending. Something to wish for at Xmas!

UK exports,  the falling value of sterling and global supply chains

Since the referendum in 2016, sterling has fallen from £1 = 1.27 euros to 1.18 euros today and from $1.45 to $1.31.

Traditional economic theory predicts that a fall in sterling will lead to an increase in the quantity of exports and, as long as the percentage increase in quantity exceeds the drop in the value of sterling, then the value of exports will increase. This will not be immediate because demand for exports is inelastic in the short term, as it takes time for UK exporters to pass on the fall in price and for foreign buyers to appreciate it. Even if UK firms do not cut prices in overseas markets, the higher profits they are now receiving from exports should encourage them to devote more resources to their export markets.

Therefore, since sterling has fallen by 12% since 2015, we should, by now, be experiencing a significant improvement in our export sales. However they have not generally responded as hoped. A key reason for this has been the development of highly integrated supply chains.

If one thinks about the processes involved in manufacture, the first stage might be  design, then raw materials will need to extracted and refined, then components  need to be manufactured, the whole product assembled, then packaged, marketed and, at each stage, transported along the supply chain. In today’s economy, the number of firms solely responsible for the manufacture of their goods is tiny and, for products with thousands of components, the process will be extremely complex, involving goods crossing borders many times.

After a fall in the value of sterling, the price of all imported raw materials and components will increase, as will the cost of fuel needed to transport components and the finished product. Therefore, exporters will find that, rather than being able to cut their prices by the full extent of the drop in the value of the currency, they will have to take account of the higher costs of their imported components and raw materials, thus reducing the beneficial impact of devaluation.

A second factor in recent years has been an increase in the importance of non-price factors, such as marketing, reliability, the ease of obtaining spare parts and delivery dates. Therefore price elasticity of demand has become less important.

Ironically, the UK companies gaining the most from the fall in sterling have been those with significant earnings overseas since these, when converted into sterling, are now worth more.

Bicycle Wars

The trade war between America and China rumbles on, confused somewhat by the recent actions which the US has taken over the involvement of Huawei in technologically-sensitive areas of the economy. The use of tariffs to protect industries involved in areas of national security can be justified by WTO rules. President Trump has been free in his use of this justification He has used it to justify tariffs on steel since it is an important product for the defence industries. His use of the argument that he has to protect strategic industries suffers when he simultaneously talks of the need to reduce the “BAD” US balance of payments deficit, which, according to him is the fault of foreign countries and not due to a lack of competitiveness among US industries.

Another more long-term example was highlighted by The Economist in a recent article about bicycle exports from China to America. (The same article also provides an insight into of the workings of global supply chains.)

In the 1970s, the vast majority of bicycles sold in the USA were made in the USA – around 15 million. By the late 1980s, US producers were suffering from Chinese-made bicycles entering the American market very cheaply and then, suffering even more when the Chinese producers further cut their already-low prices to drive out domestic US production – an example of dumping. Remaining US producers sought anti-dumping tariffs but the US government was more interested in good relations with China and did not act.

Some bicycles are still made by a US firm – BCA, the Bicycle Corporation of America, which was launched when Walmart decided to operate a Buy-American campaign. However BCA is now a subsidiary of a Chinese firm, Kent, (previously a US family firm which was half bought by a Chinese firm) and, furthermore, BCA only assembles in the USA, it buys its parts from a Kent factory in China.

Last September bicycle prices were raised by 10% tariffs and a further 15% tariff was imposed in May, hitting US consumers.

What right did President Trump have to do this? He used a US government power – section 301 – which allows the US government to protect intellectual property. How does this apply to Chinese bicycles?

A look at the world economy.

Recently there has been considerable attention given to the current, positive economic indicators for the UK economy. The three months to February showed the number of people in work reaching a new high of 32.71 million, or 76.1%, the highest for 48 years, the unemployment rate falling to 3.9%, the lowest since 1975 and average weekly earnings increasing by 3.5% in the year to February. With March CPI inflation unchanged at 1.9% (and core inflation also unchanged at 1.8%), real incomes are increasing although there is  concern that inflationary pressure will increase as earnings continue to rise while productivity remains weak.

However for the UK, which is a very open economy, what happens elsewhere has a significant impact on our performance. Three areas are significant – Europe, China and the USA.

Europe is struggling. Its strongest economy, Germany, has cut its growth forecast for 2019 for the second time in three months, now predicting growth of only 0.5%. The reasons cited for the slowdown are the continuing trade dispute between the USA and China, a general world slowdown, Brexit uncertainty and falling car sales. Italy is also a cause for concern. Not only is it predicting growth of only 0.2%, its financial situation is worsening and there is concern that it will breach the targets agreed with the European Commission for government borrowing and its national debt. While the Eurozone was able to deal with a financial crisis in Greece, if Italy, a key member of the Eurozone, continues to run excessive deficits, the implications for financial stability would be more serious.

The Chinese economy appears to be doing well. Over the first three months of the year, GDP grew at an annual rate of 6.4%. However there is concern over the impact of the continuing trade dispute with the USA, worry about the increases in China’s debt, which is financing the growth, and, possibly most importantly, fears over the sustainability of its growth because of its reliance on infrastructure spending. In most countries, high infrastructure spending would be a positive feature but there is concern in China about an infrastructure “bubble” with reports of new cities being constructed which have few people, cars or shops.  One way of appreciating the scale of the spending is to consider a Washington Post report that China used more cement between 2011 and 2013 than the USA used during the entire 20th century. These concerns coincide with China’s diminishing balance of payments surplus as the Chinese buy more foreign goods and travel overseas more and its exports are falling. In 2007, the surplus was 10% of GDP, it is now only 0.4%. While this is good for the UK if Chinese consumers buy more UK exports and decide to visit UK tourist destinations, if it heralds a slowing of China’s growth, the positive impact might be short-lived.

The third pillar of the global economic triangle is the USA and US economic growth slowed to an annual rate of 2.6% in the last three months of 2018. The high growth in 2018 was partially caused by a large tax cut and an increase in government spending and it is expected that once the effects of the stimulus wears off, growth this year will fall towards its long-term level which the Federal Reserve suggest is between 1.7% a year and 2.2%, some way below President Trump’s target of 4%. USA prospects are likely to be influenced by the impact of trade negotiations with China and the EU which are unknown at present but if we are unable to strike a trade deal with the US and UK businesses find tariffs placed on their exports, the impact on the UK could be severe.

Brexit, the WTO and the Irish Border

The World Trade Organisation was established in January,1995 to promote free trade since it believes that it provides benefits in the form of greater choice and lower prices, stimulates economic growth, raises incomes and promotes world peace. It also acts as a forum for negotiations to reduce tariff barriers,  provide technical assistance for developing countries and  resolve trade disputes between its 164 members. For example, in August 2018, Turkey complained to the WTO about US sanctions on Turkish exports of aluminium and steel. If, after investigation and consultation, the WTO believes a country has broken its rules, it can authorise retaliatory tariffs.  Until the Brexit referendum, the WTO had not featured  in UK newspapers. However since the vote and the lack of progress in  talks with the EU, there has been increased interest in its role in regulating world trade  since, if no agreement is reached, the UK will fall back on WTO rules following its departure from the EU on 29th March.

Anyone wishing to join the WTO must agree to accept all its rules, particularly the  ‘Most Favoured Nation’ agreement whereby countries  must apply the same tariff to similar goods, irrespective of the exporting country, unless there is a free trade agreement between the importing and exporting countries. Thus if we leave the EU without an agreement, the EU will apply the same 10% tariff on UK car exports into the EU as it does to those coming in from other non-EU countries. Similarly, if the UK government were to announce a unilateral move to zero tariffs on agricultural products from the EU, without a trade deal, we could not levy tariffs on agricultural goods from elsewhere.

A significant concern is that WTO rules do not reduce regulatory barriers. At present, because of the Single Market, a UK car manufacturer can sell products as easily in Rome as Romford. This will cease if there is no agreement with the EU and therefore we would expect UK goods to be inspected when entering the EU, in the same way that British goods entering  Japan are currently examined to ensure that they meet EU standards. This might not seem a major problem but exporters fear that administrative burdens of completing customs forms and the delays to drivers at borders will be significant, therefore increasing costs.  This will be particularly important for those trading in perishable goods, some medical products which need to be refrigerated, and companies currently operating with minimal stocks in order to reduce costs.

A third concern is that WTO rules do not currently provide as much freedom for trade in services as they do for trade in goods. At present, for example, UK banks provide services for individuals, businesses and other banks across the EU without needing to duplicate all of their physical locations overseas. Leaving the EU will make trade in services, which make up 80% of the UK’s GDP, far more difficult and explains why UK financial consultants, bankers, accountants, etc are moving staff and  have established physical locations overseas.

Some in favour of leaving the EU argue that these arguments will not be significant since much non-EU trade is done under WTO rules. However the Economist pointed out (4th August 2018) that the UK would be the only large country trading solely on WTO rules and many other countries have arrangements in place to reduce the administrative customs burdens which hinder trade.

The problem with the border between the Republic of Ireland and Northern Ireland is also causing difficulties in our negotiations with the EU since two almost incompatible ideas need to be reconciled. On the one hand, the EU is insisting that, unless there is a new  form of customs union between the UK and the EU (which some pro-Brexiteers resist since it will reduce our ability to sign other deals), there must be a border between the UK and the EU to allow for customs checks to ensure that goods pay the appropriate tariffs and meet regulatory standards. For England, Scotland and Wales, this will be a sea border. However between Northern Ireland and the Republic, it will be a land one. Not only will this be  hard to enforce since there are many possible routes between the two, there are also very major political difficulties in re-establishing a hard border which relate to historical issues between the two countries. The idea of a “back-stop” which would allow free trade between the two countries would involve a different regulatory regime for Northern Ireland compared to the rest of the UK, something which is equally politically difficult to accept.

It is difficult to predict what the effects on our trade will be until the Brexit agreement is reached. As part of the EU, we currently benefit from free trade treaties between the EU and other countries and we do not know whether we will be able to negotiate to keep these agreements. A recent example of this is the recently-signed EU-Japan trade deal which we hope to replicate. However the Japanese have made it clear that it will not be ready to be signed by 29th March and, given the importance of Japan-UK trade, this is potentially a serious issue. Indeed, Dr Fox’s claim in 2017 that  the UK would be able to replicate up to 40 EU free trade deals, immediately we leave the EU is not going to happen. So far we have signed  agreements with Australia, Chile, the Faroe Islands, some African nations, Israel,  Palestine and Switzerland. The failure to sign agreements is already impacting on British businesses trading with Asia since goods now being shipped will not arrive until after 29th March and exporters do not know whether they will be liable to tariffs or potentially might even be sent back to the UK. If there is no deal by 29th March, then 18th April becomes the next key date since, by then, the UK must confirm whether it will make contributions to the EU’s 2019 budget which are due by the end of April. A decision to make these payments will  require a vote in Parliament. If we do not make these payments, then our relations with the EU will deteriorate further and the chances of a trade deal will diminish even further.