June 9, 2023 - 11:00am
Rishi Sunak and Joe Biden have reached an economic arrangement of sorts. But it is not the one that many in Britain wanted. Rather than secure a free trade arrangement — something that was widely hoped for, but never politically realistic — Britain will have to be content to hang on the coattails of America’s Inflation Reduction Act (IRA).
The two leaders came away from the meeting having agreed on an “Atlantic Declaration”. The declaration has a distinctly protectionist flavour and seems to envisage a world in which core American allies increase their ties to America and restrict their activity with America’s adversaries. Despite having become Prime Minister as a free marketeer, Sunak leaned into the protectionist rhetoric.
“Countries like China and Russia are willing to manipulate and exploit our openness, steal our intellectual property, use technology for authoritarian ends or withdraw crucial resources,” he said. “They will not succeed.”
What does Britain get out of this arrangement? Not much, frankly. Much of the declaration seems aimed to lock certain industries related to defence, nuclear, and critical minerals into country-exclusive contracts. The one clear benefit that Britain gets is access to some of the IRA’s green financing.
British producers of electric cars will be eligible for tax credits to the tune of $3,750 per vehicle, but only if they build the batteries in Britain or source them from friendly countries like Japan. But when you look under the hood of the electric car numbers, something immediately jumps out. The top export destination for British cars is the United States, which makes up 13.3% of total exports. Coming in second, however, is China, making up 8.7% of total exports. Given China’s rapid rate of growth, there is little doubt that, if free trade were allowed, China would become the largest buyer of these vehicles within a few years.
Of course, signing the Atlantic Declaration does not mean an end to trade with China. But the fact that America is offering subsidies to a growing sector in Britain that is increasingly dependent on sales to China, while simultaneously insisting that Britain engages in less trade with China, shows up the sorts of contradictions that protectionist policies can engender.
Then there is the broader question: what exactly is America’s goal with the IRA? If you are to believe the proponents, the IRA is an industrial policy designed to onshore American industry. The motivation is to deal with America’s trade deficit and stop its reliance on countries like China for so much of its manufacturing imports.
Yet, if we look at the actual numbers, this is not what the IRA does. For every $1 in tax credits and subsidies that the IRA targets at manufacturing, it spends $6 on green energy and the environment. The IRA is less a serious industrial policy than it is a repackaged Green New Deal. This is a classic case of highly-charged American domestic politics overriding stated foreign policy goals.
Britain is between a rock and a hard place here. Even putting aside the foreign policy ties between the two countries, the British economy is highly reliant on the American economy. Britain’s two largest trade partners are the United State and the European Union. But while Britain runs an enormous trade deficit with the European Union, it runs an enormous trade surplus with the United States. There is no question of Britain cleaving away from its economic relationship with America and is it currently in the position of accepting terms rather than making them.
But given the fragility of the present global situation, it is rather foolish to bet the farm on what former Democratic speaker of the House Nancy Pelosi only four years ago snarkily referred to as the “green dream”.
Philip Pilkington is a macroeconomist and investment professional, and the author of The Reformation in Economics
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SubscribeI couldn’t agree less with this article. This is a great deal for the UK. A tight core of countries – Australia, Canada, Mexico, Japan and Britain – are forming an alliance with the US to contain Chinese expansionism. Would we rather be on the inside or the outside?
The idiotic policies of the early 21st Century allowed China unfettered access to our markets which almost allowed it to surpass the USA as the largest economy in the world. It also allowed critical supply chains to be reliant on a hostile and untrustworthy regime. Complete madness! In the wake of the Chinese Covid Pandemic even the slowest of US presidents knows this can’t continue.
We are now in the inner circle. This should be seen alongside AUKUS, the CPTTP accession, the new trade deals with Australia and New Zealand and the Hiroshima Accords with Japan as Britain’s post-EU strategic policy: in lock-step with the US, closely allied with Australia/Japan/Canada and co-operating with our European allies on trade, defence and other projects.
Tom McTague laid it out succinctly in these pages.
Exactly.
Globalisation was to detriment of the West (apart from top 10%) and with China abusing it in major way, even more so.
Do we want to commit economic and cultural and ethnic suicide?
It was really useful for the West that Xi jump his gun instead of following Xeng idea of waiting, getting stronger and then acting.
Exactly.
Globalisation was to detriment of the West (apart from top 10%) and with China abusing it in major way, even more so.
Do we want to commit economic and cultural and ethnic suicide?
It was really useful for the West that Xi jump his gun instead of following Xeng idea of waiting, getting stronger and then acting.
I couldn’t agree less with this article. This is a great deal for the UK. A tight core of countries – Australia, Canada, Mexico, Japan and Britain – are forming an alliance with the US to contain Chinese expansionism. Would we rather be on the inside or the outside?
The idiotic policies of the early 21st Century allowed China unfettered access to our markets which almost allowed it to surpass the USA as the largest economy in the world. It also allowed critical supply chains to be reliant on a hostile and untrustworthy regime. Complete madness! In the wake of the Chinese Covid Pandemic even the slowest of US presidents knows this can’t continue.
We are now in the inner circle. This should be seen alongside AUKUS, the CPTTP accession, the new trade deals with Australia and New Zealand and the Hiroshima Accords with Japan as Britain’s post-EU strategic policy: in lock-step with the US, closely allied with Australia/Japan/Canada and co-operating with our European allies on trade, defence and other projects.
Tom McTague laid it out succinctly in these pages.
“Of course, signing the Atlantic Declaration does not mean a secession of trade with China.”
Is that meant to be cessation?
“Of course, signing the Atlantic Declaration does not mean a secession of trade with China.”
Is that meant to be cessation?
Sunak didn’t have a choice. Biden gave him his walking papers and gave it a fuzzy but comfy name – the Atlantic Declaration. Much like the Inflation Reduction Act, which didn’t reduce inflation, the Atlantic Treaty was a push off.
Sunak didn’t have a choice. Biden gave him his walking papers and gave it a fuzzy but comfy name – the Atlantic Declaration. Much like the Inflation Reduction Act, which didn’t reduce inflation, the Atlantic Treaty was a push off.
Like he had a choice? That said the right call.
Pain though will ensue. De-risking/de-coupling from China, as US clearly expects us to move towards, will have a not insignificant adverse impact short term at least. Let’s hope we’ve learnt the lesson of not being straight with the public about the trade-offs required and how much more recent prosperity has been built on Chinese growth. One suspects Sunak is not quite ready for that and the photo-op in Oval office out well ahead of where this next takes us.
Like he had a choice? That said the right call.
Pain though will ensue. De-risking/de-coupling from China, as US clearly expects us to move towards, will have a not insignificant adverse impact short term at least. Let’s hope we’ve learnt the lesson of not being straight with the public about the trade-offs required and how much more recent prosperity has been built on Chinese growth. One suspects Sunak is not quite ready for that and the photo-op in Oval office out well ahead of where this next takes us.
So if we run a trade surplus with the US and a huge defecit with the EU, why wouldn’t we want to do more trade with the US ? Seems like a no-brainer to me.
Very happy if we are in the “inner circle” with US, Japan, Aus, NZ. They aren’t perfect, but we understand and can trust them far more than countries like China. And have far greater common interests.
Plan for success. Stop subsiding failure.
Free trade is on the way out. The earthy and salty people (such as Brexiters), god bless ’em, the real people (as they see themselves), they hate it as it is seen as a spawning ground for the hated globalist elite. Everywhere, nationalism and protectionism is on the rise. Brexit itself, which cut ties with its near neighbours on the grounds of sovereignty, is a perfect example of that trend; but Britain is far from alone in the global trend.
Agree. I think this yearning for Free Trade Agreements is very ‘old world’ thinking now. There are really only two economic systems -America and China. You just need to choose how to utilise both to your advantage. We in the UK chose America, correctly I think.
The EU seems to see itself as an alternative to both. That will be their undoing.
You forget that delusional EU still thinks that they can be the 3rd power between USA/West and China/Brics.
Sort of like non aligned movement of 60s and 70s.
There is no benefit to EU in world dominated by China.
Agree. I think this yearning for Free Trade Agreements is very ‘old world’ thinking now. There are really only two economic systems -America and China. You just need to choose how to utilise both to your advantage. We in the UK chose America, correctly I think.
The EU seems to see itself as an alternative to both. That will be their undoing.
You forget that delusional EU still thinks that they can be the 3rd power between USA/West and China/Brics.
Sort of like non aligned movement of 60s and 70s.
There is no benefit to EU in world dominated by China.
Free trade is on the way out. The earthy and salty people (such as Brexiters), god bless ’em, the real people (as they see themselves), they hate it as it is seen as a spawning ground for the hated globalist elite. Everywhere, nationalism and protectionism is on the rise. Brexit itself, which cut ties with its near neighbours on the grounds of sovereignty, is a perfect example of that trend; but Britain is far from alone in the global trend.