According to the IMF’s latest analysis of economic ranking, admittedly pre-Covid so it is likely to be flattering, the UK is in 7th place with a 3% share of the world’s nominal GDP. We have recently fallen behind India. The US accounts for a 24.7% share and China 16.9%. The EU, post-Brexit, accounts for c16%. On a per capita basis we rank 23rd. That hardly amounts to a powerful bargaining position as we forge our new post-Brexit global trading alliances…
And there is no clearer indication of our relative economic weakness than the rows and U-turn over the role of Huawei in helping to build our 5G network. The government announced this week, under some pressure from the Trump administration and its own backbenchers, that Huawei will be banned from supplying new equipment to the UK’s 5G network from the end of the year, reversing a decision made in January. In part this is due to a ‘reassessment of security risks’ prompted by fresh US sanctions. Huawei now cannot rely on the supply of US made chips and will have to rely on home grown ones. Then there is Hong Kong…
The impact of this decision will apparently be a 2 year delay in rolling out our 5G network at a cost of £2 billion and that is before any compensation to operators. It has also damaged our relations with China where inward investment to the UK has already fallen from a peak of over $30 billion in 2017 to less than $3 billion in 2019. The Chinese Ambassador warned such a move would damage Britain’s image as a proponent of free trade and cautioned that it was “not in the UK’s interest” to make an enemy of China. Strong stuff.
The purpose of this blog is not to debate the merits of keeping Huawei at bay but to highlight the economic vulnerability of our current position. We have been dragged, albeit reluctantly, into Trump’s confrontational trade war with China in advance of trying to secure a free trade agreement with the US. To what extent are the two linked? We are also being threatened by China. Our bargaining chip of 3% of the world’s GDP is looking somewhat meagre.
Earlier this week government officials admitted that the post-Brexit bureaucracy burden of trading with Europe, even if a trade deal is reached, would involve an extra 215 million customs declarations at a cost of £7 billion a year. Even Michael Gove confessed that any new arrangements would require the hiring of some 50,000 private sector customs agents to deal with these formalities. Such is the price of leaving the single market.
Over half the world’s trade is divided between 3 trading colossi, one of which is the EU. Our economic weakness relative to the other two, the US and China, has just been cruelly exposed with the prevarications over Huawei. It will be miraculous if we hold on to our current share of global GDP in the post-Covid years ahead which, in any case, has been shown to provide little protection. Against this backdrop, the cost of this Government’s ideological obsession of leaving the EU on its own terms is increasingly plain to see.
Inside Right Politics 