How will UK trade survive global upheaval?   

We need to understand how geopolitics is changing the context and priorities for trade. In the nineties and noughties, halcyon days of globalization, I spent seven years in Brussels promoting liberal EU (and UK) trade policies. Now we live in very different times.  

The pursuit of a more integrated global economy based on comparative advantage was not a mistake. It has brought many benefits to mankind. The problem is that we mishandled it, failing to think through the implications, whether for the planet or for national societies.   

Openness of trade and investment has increased overall prosperity in richer countries and reduced poverty in poorer ones. It stimulates competition, innovation and potentially stabilising interdependence.

But it has also meant great structural change in markets, supply chains and production, hitting communities and individuals hard. As the sense of inequality in our domestic economy grew, we did not create adequate social or economic stabilisers.  

Governments also stepped back too far from supervision of markets. This was a major cause of the great financial crisis of 2008 - the most consequential geoeconomic and geopolitical event of the 21^st century so far.  Subsequent policies of austerity undermined confidence in government.  

All this coincided with the systemic impacts of stunning Chinese growth involving abuse of  trade rules, and the uncharted social and political consequences of new technologies.

I went to Brussels in 1996, shortly after the success of the Uruguay Round and creation of the WTO – just 30 years ago. After leaving in 1999, I returned in 2004 and worked on the Doha Round, whose failure signaled the decline of trade multilateralism.

Since then have come Brexit, and a double dose of Donald Trump. Covid undermined confidence in global supply chains, as did Russia’s invasion of Ukraine. Amid geopolitical uncertainty, competition and confrontation, it’s hardly surprising that the tide has turned towards economic nationalism and political populism.

Brexit gave the UK flexibility in trade policy, as was recently seen with the US and India. But it has also reduced our trade intensity with Europe and overall, and rendered us more vulnerable to global economic forces.

Despite the anomaly of Brexit, it remains British policy to advocate open trade. It is correct to pursue trade opening both in bilateral or regional relationships and through plurilateral sectoral agreements.

But alongside this we need tougher defence against market abuse and the actions of others.  Our economy relies heavily on trade and investment, but we no longer have a global-scale internal market. We are increasingly exposed to antagonistic behaviour between the US, China and the EU, and are vulnerable to retaliation.

The risks are that we end up playing an endless tactical game, balancing one relationship against the other with no clear strategic purpose, and that we are forced to surrender our right to take independent decisions.

The US remains indispensable for our security and as our major single nation trade partner. But America is behaving aggressively in trade towards Europe and the UK, and this is not just about one individual. The cost of cultivating Washington will be an expectation that we align with US policies including towards China, or face choices that inhibit our relations in Europe.

Beyond the tactical management of Trump, it makes strategic sense to hedge our dependence on the US by developing other trade and security ties. The EU has many problems but is still a huge market on our doorstep, formed of countries that largely share our geopolitical risk profile and societal values.  We need to rebuild trade there, however neuralgic this is in domestic politics.  

China is a phenomenal story of economic growth and scaling. But it achieves this in ways which distort competition and pose threats to our economic, infrastructure and wider security. Derisking this relationship is correct. Far-reaching decoupling would be economically and geopolitically disastrous.   

As the tectonic plates between these trade powers shift, the UK is inevitably caught up. Whether over steel, electric vehicles, AI regulation, tech taxation, or pharma pricing. We need to think clearly about longer term trends and trade-offs involving geography, reliability, supply chains, values and security.

Good trade policies should be rooted in evidence-based approaches to advancing national, business and consumer interests.  But trade is increasingly political. While it’s right to continue to support openness in a rules based system, it’s also necessary to recognise harsh realities and fight your corner. Finding that balance, when rules are ignored in Beijing or rewritten daily on Truth Social, will only get harder.   

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