CWS Board Member Cllr Adrian Mason:
There is much disquiet over China at the moment. How these emotions play out in our attitudes to trade in the coming months and years may determine the future of our international trading policies. Questions are being asked as to how the UK has become so dependent upon China as a trading partner. It is not an equal partnership of course. UK exports to China amounted to £22.6 billion in 2018 whereas our imports were £44.7 billion, a deficit of £22.1 billion. China was the UK’s fourth largest source of imports and sixth largest export market. It would be a difficult task to extricate ourselves from such a huge trading market without inflicting damage to our economy, even if such a thing was possible.
It is important to remember why our dependence on the Chinese market has become so dominant. During the 1970s and early 1980s, excessive wage demands drove entrepreneurs to look elsewhere for skills and expertise to produce their goods. Consumers were demanding value for money and shareholders demanding more and more profits. China offered a source of cheap labour and this was seized upon by British companies operating in a competitive marketplace. There followed a steady exodus of manufacturing. Few at that time appreciated what the long-term consequences would be.
The human cost of the Covid 19 pandemic makes it easy to express an emotional argument for change but we have also been awakened to the huge economic dependence on Chinese-made goods. You only need to look at your own purchases to see how many of them are made in China. Some express surprise that we have allowed ourselves to be come so dependent on a secretive state with a dubious human rights record. The trading deficit between us is substantial and we suffer from a huge inequality of bargaining power. Nevertheless, there are good reasons to maintain the status quo. Firstly, there is the issue of existing contractual relationships with Chinese companies, some with lengthy terms to run. You simply cannot walk away from these arrangements without legal consequences. What is the commercial incentive to do so anyway? Secondly, such a decision would require us to quickly source alternative markets; and finally, what would the consequences be for our own exports to China? The Chinese would very likely engage in a tit-for-tat exercise which would have very negative consequences for our exports.
Some have suggested that the UK can divert its business to Commonwealth countries. But how realistic is this idea? According to a report by the House of Commons Library published in February 2020, our exports to the Commonwealth amounted to £59.8 billion and our imports were £55.5 billion. That gives us a healthy £4.2 billion surplus. However, there was a deficit in goods that was more than offset by services. The Commonwealth accounted for 9.3 % of UK exports, roughly the same as UK exports to Germany. It accounted for 8.1% of UK imports, the same as we import from the Netherlands. Furthermore, UK trade with the Commonwealth was heavily focused on five countries – Australia, Canada, Singapore, India and South Africa with 73% of UK exports and 66% of our imports.
Being able to source alternative contracts from Commonwealth countries with the skills, expertise and labour costs competitive with China would be challenging to say the least in the short to medium term. Markets take years to develop, so the reliance we have upon China will take decades to overcome. It is certainly true that our ability in the long term to find alternative markets will be greatly enhanced now we have left the European Union. No longer having to contend with artificial trade barriers, as a ‘third country’ we can negotiate our own trading policy. That still leaves us dependent upon sourcing marketplaces that are as competitive and established as China.
Admittedly, factory labour costs in China have increased substantially in the last 20 years and are beginning to catch up with those in the UK in some sectors but, they are still the established route. There are other places like India that are still a long way behind us in labour costs, but cheap labour cannot compensate for technical know-how. China is way ahead of the field in hi-tech industry as aptly demonstrated by the recent decision to award part of the 5G contract to Chinese firm Huawei.
Disappointing as it may be to those who would like to see us immediately sever our ties with China, it is simply unrealistic in the short to medium term. Looking to the Commonwealth is not a solution either and other, established countries would be an expensive option, even if they have the infrastructure and capacity to fulfil our commercial requirements. Rather than look at other countries to loosen China’s current grip upon us, perhaps the solution may be found closer to home.
The UK has a long history of innovation, manufacturing and productivity and saw it decline only in the latter part of the Twentieth Century. Given that any changes will take decades to achieve, why not use the opportunity to gradually reduce our dependence on Chinese imports and become a net exporter of home-grown tech instead? Based on current trends our labour costs are converging, we have the skills and the ingenuity to become world leaders in producing and manufacturing cutting edge tech and other goods
Government should be investing heavily in providing the infrastructure to make it happen through education, training, supporting and financing the entrepreneurial spirit of the nation, now that we are free to set our own free trade deals (or will be, once the Implementation Period is over). We have world-leading scientific research establishments, some of the top universities in the world, a newfound spirit after years of EU subjugation and a commercially minded government. We are well placed to embrace a new way of doing things. Having so comprehensively rejected socialism, the British people are looking for a new challenge and this could come by reinvigorating our development and manufacturing sectors again.
Yes, it does need bold leadership, someone who can change long-term views but Boris Johnson with his ‘can do’ attitude is just the tonic this nation needs. Held back over the last 46 years by EU rules and regulations, we can seize the opportunity with our new found freedoms to move forward, reducing our dependency on Chinese imports. As Steve jobs once said, ‘The ones who are crazy enough to think they can change the world, are the ones that do.’ Those wanting a swift end to Chinese dependency will just have to be patient.