With government bond yields rising, sterling falling and, all things considered, markets looking rather choppy in the UK, it is highly likely that Rachel Reeves’ trip to China will be overshadowed by rumors.
There’s a chance the dominant narrative doesn’t speak China himself, but why didn’t she cancel the trip.
But make no mistake: this tour is a big deal. A very big deal – potentially one of the most interesting moments in recent British economic policy.
For what? Because the UK is doing something very interesting and quite counterintuitive here. It’s a bet. Because even as almost every other country in the developed world cuts ties and imposes tariffs on China, this new Labor government is doing the opposite: it is trying to get closer to the world’s second largest economy.
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The chancellorthe three-day visit of Beijing And Shanghai This is the first time a British finance minister has visited China since Philip Hammondthe 2017 trip, which in turn followed a very large mission of George Osborne in 2015.
At the time, the United Kingdom was trying to strengthen its economic relations with China. He encouraged Chinese companies to invest in this country, helping to build our next generation of nuclear power plants and our telephone infrastructure.
But since then, relations have deteriorated. Huawei has been banned to provide this telecommunications infrastructure and China is no longer building our next power plants. There has been no “economic and financial dialogue” – the name of these missions – since 2019, when Chinese officials came to the UK. And the story is much the same elsewhere in the developed world.
In the meantime, G7 countries, led by the United States, have imposed various tariffs on Chinese goods, sparking a slow-moving trade war between East and West. The latest tariffs concerned Chinese electric vehicles. The US and Canada have imposed 100% tariffs, while the EU and a number of other countries, from India to Turkey, have introduced slightly lower tariffs of their own.
But (with the exception of Japan, whose consumers tend not to buy many Chinese cars anyway), there is one developed country that, at least until now, has stood alone, refusing to impose these additional customs duties to China: the United Kingdom.
The UK then stands out – diplomatically (especially as the new US president takes office, threatening to impose even higher and broader tariffs on China) and economically. Currently, no other developed market in the world looks as attractive to Chinese automakers as the UK. Chinese manufacturers, able through their expertise and a wealth of subsidies to produce cars much cheaper than those made domestically, have targeted the UK as an incredibly attractive prospect in the years to come.
And while the European strategy is to impose tariffs intended to decrease if Chinese automakers commit to building factories in the EU, Chinese companies have less incentive, as far as we can understand, to do the same in the United Kingdom. The result is that domestic producers, who have already seen China overtake every other country except Germany, will have an even harder time in the coming year keeping up with cheap Chinese imports.
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It is unclear whether this is the price the chancellor is willing to pay for greater access to the Chinese market. Certainly, even though the UK imports more than twice as many goods from China as it sends, the country is an attractive market for British financial services companies. Indeed, many bank executives are accompanying the Chancellor for the dialogue. They hope to boost UK financial services exports in the coming years.
However, many questions remain unanswered:
• Is the Chancellor moving closer to China with an eye on future trade negotiations with the United States?
• Is she ready to return to this relationship if it allows for an agreement with Donald Trump?
• Is she comfortable with the impending influx of cheap Chinese electric vehicles in the months and years to come?
• Is it prepared to deal with the potential impact on the domestic auto industry, which is already grappling with a host of other challenges?
• Is this a price worth paying for greater financial access to China?
• What, in short, is the grand strategy here?
These are all important questions. Unfortunately, unlike in 2015 or 2017, the Treasury decided not to bring the press with it. Our possibilities of finding answers are therefore much more limited than usual. Given the importance of this economic moment and this journey itself, this is desperately disappointing.