Changing Trade Dynamics in an era of Gold 

Introduction

The United Kingdom and China have unwittingly been placed in the front seats to a lesson of global proportions in the dynamics of international trade this year, with the advent of the United States President looking to secure the US economy through far-reaching tariffs, promising to pay special attention to the European Union and China, which have crossed the metaphorical rubicon in there use and so-called abuse of the United States economy. To this end, this publication will focus on the UK, EU and China, observing how their current relationships with the United States could be affected and how this could lead to serious consequences for the United States in the long run. First, it will focus on the new and renewing links being made between the UK and the EU and the EU and China, indicating a potential return to the trade dynamics of old and the implications this will have for the United States economy. Following this, a direct and statistical look at how the Chinese economy has responded to an impending and current Trump presidency will be assessed. Finally, this article will examine how China has been positioned advantageously in this new era of global trade dynamics and what this means for Britain, the European Union and the United States in the long term.

The revival of EU / UK relations

The sentiment of a post-Brexit Europe has been tinged with a hint of sarcasm regarding the relations between the United Kingdom (UK) and the European Union (EU) as both parties recover from and discover more problems emanating from the landslide decision of the British Exit (Brexit). Over the last five years of so-called independence, it has become evident to both parties that independence cannot be achieved without interdependence. This is most prominently demonstrated in UK-EU relations, as both the EU and the UK have adopted a firm stance on the matter of Ukraine and have coordinated efforts to tackle illegal immigration through an increasingly bilateral framework.

To this extent, Brexit has served as a prelude to the resurgence of nationalist and, to some extent, protectionist policies as a top priority among nations in the Global North. However, in this quagmire of political relations, the most applicable agenda in the face of crises such as the COVID-19 pandemic and the war in Ukraine has led the UK and the EU to adopt a similar and intertwined approach to resolution. This has reinforced the reality that, despite Britain’s persistent denial of its European status, it must politically align with the actions of the continent. With this being said, the renewal of UK-EU relations in the post-Brexit and, indeed, post-Biden world has led to what can be perceived as a revival of intertwined interests regarding the future of trade within the continent and extending into Asia. This is a vision not seen since the Comprehensive Agreement on Investment (CAI), which was signed in 2020 between the EU and China and after which EU nations began engaging in their own negotiations with China. To this end, the EU/UK free trade agreement asserts that “recognising the importance of global cooperation to address issues of shared interest” is crucial for maintaining “zero tariffs and zero quotas on all goods that comply with the appropriate rules of origin”. This point reinforces the notion that an Anglo-European partnership is increasingly likely, especially considering the ongoing unpredictability of US foreign policy, as evidenced by recent discussions regarding Britain’s potential entry into the Pan-Euro-Mediterranean Convention (PEM). In this context, the UK could regain some form of access to the EU’s single customs market, which would provide the UK with preferential treatment within the PEM bloc.

This shared sentiment of free trade is not lost on the relationship between China and the European Union as they seek to streamline their partnership following trade disputes in 2023. Xi Jinping remarked that "China and Europe should strengthen strategic communication and enhance mutual trust as the international situation becomes more severe." While there has been no official comment from the European Commission yet, trade volumes often provide clear indications. The EU’s trade deficit with China fell by 27% in 2023, from €397 billion in 2022 to €291 billion, reflecting a 3% decline in exports to €223 billion and an 18% reduction in imports to €514 billion. This shift may be attributed to China’s increasing reliance on domestic production and efforts to reduce dependency on Western imports, rather than a direct result of EU policies aimed at economic "de-risking”. Therefore, the renewal and implementation of this so-called grand strategy appears likely to take effect if the President’s 'shot across the bow' becomes a reality and could the UK put itself in a key position as a key mediator between the two superpower economies.

What this means for the United Kingdom 

Given this question, what steps could the United Kingdom take to successfully navigate this complex situation? To summarise the key points presented, the factional split between the United States, the European Union and China creates an opportunity for Britain to act as an intermediary between the three, leveraging its hegemonic financial system and geopolitical position. While this strategy presents risks to both of these factors, the potential rewards are too significant to ignore. It could result in a trifecta of increased foreign direct investment, enhanced political relevance within an evolving European order and a strengthening of the UK's soft power on the international stage through its ability to influence the global North.

With the possibility of a joint preferential treatment agreement from both the EU and the US, the UK could find itself in a unique position to bridge these divides and play a central role in this developing political landscape. However, the success of this approach depends largely on  British entry into the aforementioned PEM and, most prominently,  whether President Trump decides to impose tariffs on both the EU and the UK. If this occurs, the US-led global order and its roots, as outlined by John G. Ikenberry, could be shaken and a move away from its systems and checks further accelerated. This would force the United Kingdom, Europe and China to either collaborate or fragment further, pursuing separate trade agendas and potentially plunging the world back into an era of great power competition, driven by the control of global trade.

Chinese reflections on Trump tariffs 

The speculative responses from China regarding the new Trump-era tariffs can be summarised in two words: "Quiet disbelief." The United States has effectively enacted what could be described as a ‘WEXIT’—a world exit—from the free trade dialogue it helped to create. While these tariffs are intended to bolster the US economy, it’s important to recognise that tariffs have historically been used as a precise tool to erode competitors’ margins, rather than as a blunt instrument akin to a "bazooka”. When the potential market consists of just over 5.7 billion people, one must be cautious in how such a tool is wielded, ensuring it is done with both mindfulness and integrity. Furthermore, President Trump’s blanket imposition of a 10% tariff on China highlights the increasing ignorance, or perhaps benign neglect, in US foreign policy, especially in relation to its own sense of exceptionalism. To elaborate, China does not possess a monopoly on the Western-style governance as defined in the United Nations (UN). Consequently, China has the option—and the ability—to seek, and most crucially, to use alternative sources for importing goods, excluding the United States and its rules based system that protects against abuses of workers and resources.

It is also vital to recognise that China’s record on human rights is far from exemplary when it comes to meeting international expectations. Therefore, it is evident that energy and luxury goods can—and indeed do—come from a variety of other countries around the globe, some of which have unpredictable or, in some cases, downright poor human rights records, such as Russia or North Korea. Central to understanding the global order is the concept of political realism, which highlights the impact of states’ actions on the international stage. This also ties into the observation that the US seems to be isolating itself from international treaties designed to benefit its own economy in the long run, while accelerating the transition from carbon energy sources to renewables.

In a roundabout way, just as the United Kingdom pursued Brexit in its own self-interest, the United States is currently adopting a policy of isolationism and withdrawal. This does not align it with a bloc of allied powers but rather plays into the hands of its primary rivals. As a result, the US's ‘WEXIT’ could lead to the fragmentation of the Western governance system as we have known it and a realignment of European and emerging powers towards a Chinese hegemony, leaving the United States isolated and increasingly irrelevant in a world that is becoming more interconnected and environmentally conscious.

Despite this, the impact on China if the United States were to withdraw into a tariff-fuelled isolation could have serious implications for China's economy, given its increasing reliance on continuous expansion of both internal and external infrastructure to support its growth. In this context, the Chinese domestic market must be understood as a potential issue and subsequent obstacle to its continued rapid rise. A sudden disruption to its fiscal balance sheets could present significant challenges.

It is important to note that China's “problems don’t emerge from the liability side of China’s balance sheets. They emerge from the asset side”. This means that the issues are not necessarily about the debts China owes but rather the quality and management of the investments and assets it holds. China's continued expansion abroad, through initiatives such as the Belt and Road Initiative (BRI), highlights this focus on assets and infrastructure development to maintain economic growth.

Summary

In summary, while the United Kingdom and China both have to comply with motions seemingly out of their play, the opportunity is there for both of them to take the reins of the leadership of  free trade into consideration. In this case, the proposition that  the Chinese state could become a hegemonic power is not unimaginable, taking a leading role in guiding the future of global trade and supply lines, and navigating through its internal financial and demographic issues with enhanced transparency and regulated integration into the rest of the developed world. In this position, the United Kingdom, as one of the main economically advanced states and leaders in products and services within the European area, could position itself to take full advantage of this evolving situation, promising more trade and interconnection between the European continent and the Asian superpower. Rest assured this will be a course set on either ruin or prosperity. 

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