LONDON — Forget a post-Brexit trade deal with China — some now think a trade war is more likely.
The "golden era" in U.K.-China relations heralded by former Chancellor George Osborne in 2015 remained a go-to soundbite during the Theresa May era. Mired in talks with Brussels on the U.K.'s extraction from the EU, the optics of post-Brexit Britain reaching out to the world’s great rising power was invoked by the former prime minister to help London burnish its new "global" credentials.
But since Boris Johnson took power, mounting concerns about alleged espionage by Chinese firms, human rights abuses and protectionist trade practices have given rise to increasingly urgent demands for a complete rethink of the U.K.’s stance.
Johnson’s decision earlier this month to grant new visa rights to millions of Hong Kongers, in retaliation for draconian anti-protest laws imposed on the territory, has infuriated Beijing and led to warnings of repercussions. Now in play: £68 billion of annual U.K.-China trade and billions more in Chinese inward investment.
A widely expected government U-turn on Chinese tech giant Huawei’s role in supplying the U.K.’s 5G network — forced by U.S. sanctions on the firm — will anger Beijing even further, experts say.
“I think we’re in for some pretty severe turbulence … What might be described as a perfect storm,” said Charles Parton, senior associate fellow at the RUSI think tank and a former diplomat with 22 years experience working on China, Hong Kong and Taiwan. China would, he predicted, put the U.K. in the “diplomatic doghouse,” threatening to squeeze investment, U.K. exports, tourism and even the number of students coming to British universities. London should also brace for an uptick in cyberattacks, he said.
The question for Johnson: can he maintain fruitful economic ties with the rising superpower while showing the world post-Brexit U.K. stands up for democratic values and will protect its own domestic security from potential foreign threats?
His own MPs are watching closely.
“This is a pivotal moment — a moment that is overdue — for us to recalibrate our stance, our geostrategic position with China,” Tobias Ellwood, chair of the House of Commons defense committee, told POLITICO, echoing the views of many on the back benches. “We are heading into a Cold War; there’s no doubt about it.”
In some respects, the government’s tone on China was beginning to change even before the Hong Kong decision and the expected Huawei U-turn.
In January 2018, from a plane en route to (ironically enough) Wuhan, former Prime Minister Theresa May told reporters, “China is a country that we want to do a trade deal with.” Two and a half years on, the Department for International Trade declined to confirm on the record whether the U.K. was still pursuing such a deal.
The cooling of enthusiasm, however, has as much to do with Donald Trump’s China strategy as it does Boris Johnson’s.
The U.K. — determined to secure a quick post-Brexit trade deal with the U.S. — has been put under pressure by Washington’s negotiators to pull away from Beijing. U.S. Trade Representative Robert Lighthizer has repeatedly said the new United States-Mexico-Canada Agreement will be a template for future U.S. trade deals and that includes a clause that empowers Washington to review or effectively reject any trade deal Mexico or Canada does with a "non-market economy," which would include China. Analysts expect U.S. negotiators to want a similar provision in any deal with Britain.
Likewise, the U.K. government’s review of Huawei’s role in supplying Britain’s 5G network, officials said, was prompted by and is focused on the complicating factor of U.S. sanctions on the firm, which target its ability to use U.S.-made semiconductors. Details of the U.K.'s decision are expected on Tuesday following a review by the government's National Cybersecurity Centre, with most expecting Huawei's role in the network to be curtailed. The decision's symbolic force could be just as great as its practical effect.
Rana Mitter, director of the University of Oxford’s China Centre, agreed with Parton that a U.K. reversal on Huawei, coming hot on the heels of the Hong Kong citizens decision, would prompt a “very, very strong” reaction from Beijing in terms of rhetoric. Since the Hong Kong decision, the U.K. has been a target of the new, robust diplomatic style emanating from Chinese embassies known as “Wolf Warrior diplomacy” (named after the series of blockbuster Chinese action films). It deploys Trump-like threats and makes greater use of Twitter to hammer home the message.
But Mitter questioned how far Beijing would really be willing to translate threats into action on the economic front.
“In the end, there are aspects of the trading relationship between the [the U.K. and China] that will be very difficult to replace,” Mitter said, citing the importance to China of the City of London and London’s legal service sector, as well as the Chinese middle class’ addiction to British universities.
“If we’re talking about the overall panorama of [economic] relations — which are very much related to services — I don’t see that going in the way of disengagement as some of the rhetoric might suggest.”
Despite the diplomatic bust-ups, the U.K. government has shown no appetite for following more hawkish MPs down the path of economic disengagement from China. Foreign Secretary Dominic Raab has made a point, even when condemning Beijing over Hong Kong, of talking up trade ties, and the pattern is likely to continue, even as London braces for any Chinese response in the weeks and months ahead.
While the next few weeks and months could be stormy for U.K.-China relations, London has more room to "tough it out" than might be obvious.
China may well seek to weaponize its young people, Parton said, preying on a U.K. higher education sector already sapped by Brexit, crippled by the pandemic and heavily dependent on fees paid by overseas students. Beijing has form in this area, last month cautioning its students to reconsider study in Australia, in a move widely seen as retaliation for Canberra's push for an independent inquiry into the origins of the coronavirus.
But Mitter said there was "a lot more rhetoric than reality” to the threats.
“There’s still a very strong stress on internationalization as part of China’s global ambition,” he said. “That means being able to operate comfortably in English-speaking environments, [so] I think the likelihood in practice that they would organize a boycott of the English language-speaking higher education sector is very low.”
Similarly on trade, the U.K. can draw some comfort from China's record in recent diplomatic spats.
In disputes with smaller countries, Beijing has tended to target symbolic, headline-grabbing imports, before quickly relenting, Parton said. When Canada arrested Huawei executive Meng Wanzhou in 2018, China banned pork and beef imports, only to lift the restriction a few months later.
In the U.K.’s case, British beef has only recently been allowed back into China more than 20 years after it was banned in the wake of the U.K.'s BSE outbreak and would be an easy target if Beijing wants to make an example of London. “I think they may well [reimpose the ban on British beef] but it won’t last long because they need the food,” Parton said.
The Huawei decision itself, however, would not be uncomplicated. Philip Jansen, the chief executive of BT, the U.K.'s main mobile service provider, said on Monday the firm had been "in the telecoms infrastructure for about 20 years" and that removing it in any less than 10 years would be "impossible."
"If we get in a situation where things need to go very fast, then we go into a situation where service for 24 million BT Group mobile customers is put into question — outages would be possible," he told BBC Radio 4's Today program on Monday. China's deeply entrenched role in other key parts of U.K. infrastructure, such as nuclear power, can't be reversed overnight either.
Some question the extent of the security threat posed by Beijing and ask whether the U.K. placing itself at loggerheads with China — alongside the U.S — is worth the potential economic pain. Others fear the Huawei decision marks the start of a "slow slide towards protectionism," as Nick Macpherson, formerly the top official in the U.K.'s treasury under Osborne and two previous chancellors put it.
"This has little to do with national security and everything to do with the forthcoming lopsided U.S.-U.K. trade deal," he said.
The growing Sinokeptic caucus in the Tory Party sees things very differently though. Whatever Beijing throws at the U.K., Johnson should be prepared to weather it, said Ellwood.
“As soon as you dare to criticize China there will be repercussions. Therefore, a foreign policy advance on China must come with the recognition that there will be an economic hit,” he said.
More broadly, Conservative MPs like Ellwood and foreign affairs committee chair Tom Tugendhat want to see a more joined-up China policy across government departments, including trade.
“China’s Achilles' heel is that its growth is absolutely dependent on global trade,” Ellwood said. “But we’re still allowing them to call the shots; we’re allowing them to change the rules or bend the rules.”
The U.K. alone — despite its strength in some specialized areas — has nowhere near the clout required to persuade China to liberalize its practices, experts said. But attention is beginning to turn in Whitehall to a club of countries that might stand more of a chance: those in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), to which the U.K. is seeking accession.
A successor to the U.S.-driven TPP (though without the U.S.), the alliance of 11 countries including Japan, Canada and Australia is seen by some in Westminster as a means for the U.K. to engage with China from a stronger position.
International Trade Secretary Liz Truss, while not naming China, said earlier this month that the benefit of the CPTPP was not just economic. “I see it as a geostrategic benefit and also a signal of the kind of modern free-trade area that the U.K. wants to be part of,” she told the Policy Exchange think tank earlier this month.
Many Conservative MPs will hope it is a sign that a department which — since the Brexit vote — has been more likely to put out a press release about selling tea to China than produce a coherent trade strategy toward China, is starting to grow up.
“I don’t think there’s any harm in pursuing trade with China — but it must be on equal terms,” said Ellwood. “We still remain in a strong position, but only if we operate collectively, internationally, in unison.”
Parton agreed. “We’ve got to get much closer to like-minded countries and present a united front … not in a hostile way, but [in a way that says] these are the ways in which we like to do business and if you want to do business with us you are going to have to accommodate yourselves to it. Standing together on this one, we’d be a lot more strong."
However, a comprehensive U.K.-China policy remains elusive, Parton added. This is something he — along with Ellwood and his allies on the back benches — believe will have to change quickly as relations become more stormy.
“These things are connected," Parton said. "The way you deal in the trade area connects to the way you deal in [other areas]. The Chinese are very happy to use things from one area as leverage for another. So you better consider it in the same way: all interconnected.”
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