Chancellor Rachel Reeves has emphasised the importance of maintaining trade links with China, suggesting the UK will not follow the protectionist measures adopted by the United States and the European Union. In an interview with Bloomberg, Reeves reiterated the benefits of being an open trading economy, particularly in the face of significant fiscal challenges.
“We are a small, open trading economy, and we benefit from those trade links with countries around the world, both for exports and imports, but also for foreign direct investment,” stated Reeves. “Our approach is to trade and cooperate where possible and to challenge where necessary. However, we do not want to close the UK economy to imports and exports. We benefit from those trade links globally, including with China.” This stance stands in stark contrast to the United States, which has imposed a 100 per cent tariff on imported electric vehicles from China, and the European Union’s increased levies on Chinese goods.
Economists have warned that the rise in protectionist trade policies could drive inflation and stifle global economic growth. The UK has become increasingly dependent on services sector exports to manage its growing trade deficit. According to the Office for National Statistics, services exports have surged by around 60 per cent in real terms since 2010, while goods exports have increased by only 7 per cent and have fallen by about 6 per cent since the Brexit referendum in 2016.
Reeves acknowledged the challenging fiscal landscape she has inherited, suggesting that unpopular tax and spending decisions may be on the horizon. She indicated that the government’s first budget is likely to take place in September or October. “I’m under no illusions about the scale of the challenge that I face,” Reeves remarked. “I won’t announce any tax breaks or changes without detailing how they will be funded.”
The Chancellor asserted that the UK’s current fiscal position is the worst since the end of the Second World War. Debt as a share of GDP is at its highest since the 1960s, and economic growth has decelerated significantly since the 2008 global financial crisis. Rising interest rates over the past two years, aimed at curbing inflation, have increased government debt interest payments, reducing the scope for significant tax cuts or spending increases. Government departments are collectively facing £20 billion in real-terms spending cuts, which economists argue could further strain already overburdened public services.
Rachel Reeves’s commitment to remaining an open economy while balancing fiscal challenges depicts a strategic yet cautious approach. The emphasis on maintaining trade relationships, particularly with China, highlights a key aspect of her economic strategy, potentially steering the UK through its current economic hurdles.
