Britain should be “China’s best partner in the West” George Osborne declared in Beijing last month. So eager has the government been in pursuit of commercial links with China that even the Obama administration looks askance. A senior American official pointedly has warned against “a trend toward constant accommodation of China”.
Mr Osborne and David Cameron have been far louder on the benefits of trade with China than on job losses in Britain’s steel industry, let alone concerns about security and human rights. The government’s policy is right. During President Xi’s visit this week, the prime minister and the chancellor should take every opportunity to expand trade and commercial ties. Here’s why.
Let’s take first the case of steel. Several thousand workers face the prospect of losing their jobs. Whatever the arguments for government intervention, the worst possible response would be to do as the steel industry demands and lobby the Chinese authorities against “dumping”.
Commodity prices generally — not only steel, but copper, zinc and other metals, as well as oil — have collapsed. At the start of this year, steel was trading at about $480 a tonne; the price is now little more than $135. The main reason is China, but its domestic economy rather than trade policy. Chinese growth slowed to less than 7 per cent in the third quarter. It is no longer the huge consumer of commodities that it was when its growth model was based on manufacturing for export.
Unfortunately, the United States has a history of imposing tariffs on imported steel. George W. Bush adopted this course in 2002. It’s a self-defeating policy: import controls, by price or quota, increase costs to the consumer and divert resources towards protected industries and away from more productive uses. If China (which produces more steel than all other countries combined) is moving towards better-balanced growth, away from exports and towards domestic demand, commodity prices will remain under pressure.
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It is in Britain’s interests to sell more to China. Our advantage is in manufacturing and services that are knowledge-intensive. The numbers show how rapidly trade has expanded. Goods and services from China are now 7 per cent of Britain’s imports, compared with 3.3 per cent in 2004. Most of this is in goods. We had a trade deficit of just over £22.1 billion with China last year and a surplus in services of £2.7 billion.
The trade balance shows a widening of our external deficit with China, as our imports have grown faster than our exports. Indeed, the external deficit generally is one of Britain’s biggest economic constraints. Sustainable growth requires a shift from consumption to investment and for us to sell more overseas.
That’s what the government’s China policy aims at. Given the Chinese leadership’s emphasis on meeting the needs of the country’s burgeoning and newly wealthy consumers, there will be increased demand for the services and branded goods that Britain specialises in. This demand will grow faster than that for commodities, bulk chemicals or machinery from Brazil or Germany.
Meanwhile, with its vast savings, China is a ready source of investment in British infrastructure. Hence the government’s welcome for investment in nuclear power. Also, the chancellor wants the City of London to be the main financial centre for settling yuan trades as the Chinese currency moves towards a greater international role.
There are risks. Whether a more open Chinese economy will lead to political liberalisation also remains an open question. Yet it makes far more economic sense for Britain to sell globalisation than to protect the domestic steel industry.
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Oliver Kamm is a Times leader writer and columnist. Twitter @OliverKamm