The UK’s New Start – A Reality Check

The UK government has five months to go before the UK-EU transition period expires. We are being told how, from January 1st, 2021, the UK will be entering a new era of global opportunities. The recently launched government campaign slogan is “UK’s new start – let’s get going”. In this new era Britain will prosper as an independent nation, free to trade wherever in the world and pursue independent policies, unconstrained by membership of the EU.

So, from a vantage point in the second half of 2020, how realistic is this prospect? We need to assess the UK’s future relationship with not only the EU, but also with the two other global political and trading blocs, i.e. China, and the US.

The EU

Currently, the prospects of a harmoniously negotiated, broad trade deal are not high. The deal, if one can be reached, will be narrow and limited. In other policy areas, for instance, foreign policy, the UK has already ruled out any direct participation in EU foreign policy.

There are, inevitably, a complex set of relationships which will have to be negotiated before any deal can be announced. Unfortunately, as the new German 6-month EU presidency has stated, ‘no deal’ is a very real possibility. Though it seems likely that a limited deal may be reached by January 1st, with the possibility of discussions on the detail of some issues continuing further into 2021.

The key issues which need to be resolved by October – so that any such deal may be approved by the EU – were set out in Ursula von de Leyen’s speech to the European Parliament on June 17:

“It is very clear that there cannot be a ‘comprehensive’ trade agreement without fisheries, a level playing field, and strong governance mechanisms. —– We want our citizens’ liberties, fundamental rights, and data to be safeguarded in all circumstances. This why we expect a role for the Court of Justice where it matters.”

Currently, there is no agreement on any of these tissues. Reports suggest that there is no love lost between the urbane and technocratic Michel Barnier on the EU side and the considerably less urbane, and certainly not technocratic, David Frost on the British side.

Independent observation suggests that, though both sides will have to compromise, it is the UK which will need to be more flexible.

Hence, even if a limited deal can be reached by October, the British approach to these crucial negotiations appears not to have endeared the UK to our former partner countries in the EU.

China

Turning to China, the prospects of a harmonious political and trading relationship with China are currently not looking good.

On Hong Kong, the UK government has ignored the factual position in favour of taking a crude anti-China position, supporting the US line of attack. For instance, there has been no British political or media reporting of the fact that 2.9 million Hong Kong residents signed a petition supporting the national security law.

This is perhaps not surprising given that since July 2019, there have been protests that rapidly escalated into riots, with rioters throwing petrol bombs to shops, police station, and even at the police. Throughout the chaos, not a single rioter was killed by the police, not so in the US in the Black Lives Matter protests.

Indeed, most of the population in Hong Kong want to see the current local social problems relating to job security and unaffordable house prices and rent resolved, not to engage in violent protests aimed at subversion of the position of Hong Kong as part of China. Complaints from the UK about a lack of democracy which during its 150 year, essentially illegal, colonial rule it never implemented are hypocritical in the extreme.

The HK democratic movement, essentially student activists, was highly organized, and well-funded, with financial support of between 600,000 to 800,000 US$, from the US National Endowment for Democracy (NED), as their website confirms.  The outcome in Hong Kong over the next months will be interesting. Certainly, major financial businesses such as the HSBC bank (who admittedly have a vested interest) are hoping that the new security law will mean an improvement in the territory.

The change in the previous UK government position on Huawei, supported by the UK security services (see GPI post on June for full discussion), has been made essentially under direct pressure from the US, plus the linked lobbying by various Conservative MPs. Such a rapid reversal of policy does not indicate a strong commitment to taking back control or pursuance of an independent foreign policy. Moreover, it is hardly likely to advance the interests of a trade agreement between the UK and China!

In terms of British economic self-interest in the new era, China houses a fifth of the global population, with a developing home consumer market and growing per capita incomes. This huge potential market will provide substantial future opportunities for British exporters. It would seem unwise for the UK to ally itself with – as the section below indicates – the newly launched US ideological cold war against China.

The US

But surely, we may expect stalwart support from our friend and close ally, the US? On the surface this may appear to be the case. However, neither history nor the potential future appears to confirm a supportive and stable relationship with the US.

A new US strategic policy towards China was announced in a document issued by the White House on May 26th. In the document it is made clear that the US that US policy towards China will, henceforth, be motivated by ideological as well as some genuine concerns. There will be a substantial ‘de-coupling’ of trade between the US and China – which will, of course, have a severe disruptive impact on multilateral patterns of trade globally – but there will also be a sanctioning of political and civil society contacts, which are likely to include organisations and countries outside the US.

The policy shift indicated above will intensify Trump’s America First policy. The attack on Huawei has demonstrated that, in pursuit of an anti-China policy, the US government will, as always, but now more intensively, use its financial and trading power and influence to pursue its industrial self-interest, irrespective of its impact on other countries, and even on the short-term interests of US companies! This wide extra-territorial ‘bullying’ of others by the US means that the US cannot be regarded as a reliable ally.

On trade, the US is already the UK’s largest single country trading partner, taking 13% of UK the export of goods and 24% of services. Because of the problems with asymmetries in trade statistics it is difficult to assess the balances of trade in goods or especially in services. For instance, the UK statistics show a surplus in services while the US statistics show a surplus in services in the other direction. What matters more is the total trade flows. However, in terms of economic impact, it has been obvious for some time that any incremental economic benefit from increasing the amount of trade already conducted with the US will be minimal. The latest 2020 UK government estimate is £3.4 billion (0.16% of GDP) over 15 years. The balance of power in trade negotiations is clearly, and substantially, with the US as the far larger economy.

However, given that the UK has acceded to the demands of the US on Huawei, it appears to have maintained a cordial relationship with the US, i.e. one of the three major trading and global political blocs. Nonetheless, in practical terms, either in relation to a trade deal substantially benefitting the UK, or in terms of being able to pursue an independent foreign policy, we appear to be gaining precious little from maintaining such a close relationship.

Conclusion

In terms of a ‘UK new start’, the government appears to have severely handicapped itself. At a time when it needed to be free to be able to seek strong sustainable trade deals with all three of the three powerful global trading blocs, the UK has damaged relations with two of the three.

The UK is not facing up to the harsh realities of being a medium-sized country in a world which is undergoing substantial political and economic change, and which is being re-organised into large regional trade and political groupings.

As with Huawei, so more widely, the UK seems to have plumped for the 5-Eyes Security Alliance, dominated by an unreliable ally the US, and three smaller, albeit friendly, countries, Australia, Canada, and New Zealand.

Despite the genuine strong cultural, technological, and diplomatic assets that the UK has, it is not deploying them appropriately or effectively in the brave new world it is entering.

About the GPI

The Global Policy Institute is a research institute on international affairs. It is based in the City of London, and draws on both a rich pool of international thinkers, academics as well as policy and business professionals. The Institute gives non-partisan guidance to policymakers and decision takers in business, government, and NGOs.

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