This is Armchair Economics with Hamish McRae, a subscriber-only newsletter from The i Paper. If you’d like to get this direct to your inbox, every single week, you can sign up here.
It’s a strange Easter weekend coming up. A year ago, it was almost unthinkable that the US and China should be fighting a trade war, overturning some 75 years of ever-greater globalisation.
That movement seemed unstoppable. As the late Kofi Annan, former secretary-general of the UN, famously observed: “It has been said that arguing against globalisation is like arguing against the laws of gravity.” Yet he also warned: “Globalisation is a fact of life. But I believe we have underestimated its fragility.”
There have been trade tensions, of course, over the past 20 years and more, and all of us have become more sensitive to the fact that there are losers as well as winners from ever freer trade; free trade, after all, is not the same as fair trade.
However, it is only since Donald Trump took office this year that the fragility Annan talked about became fully evident, or indeed, how intertwined the world economy has become.
Look at how the US had to row back on the most extreme version of its proposed tariffs on smartphones and computers from China when it became clear that the price of an iPhone in America could rise by several hundred dollars. Some 80 per cent of iPhones are assembled in China.
That was an obvious issue – or at least it should have been to the President and his colleagues. A less obvious example of the complex relationship between the US and China was exposed when China halted exports of seven medium and heavy rare earth elements.
These are essential in the manufacture of US defence equipment, including the F35 combat aircraft and Predator drones. China has a total monopoly over the refining of these minerals, and while the US Department of Defence is building capacity to do so, it will not be able to fulfil its military needs until 2027.
Here in Britain we have just become very aware of the complexity of our commercial relationship with China over the future of British Steel. It’s not simply a question of how to continue production at what is a loss-making facility. It’s also a matter of where the coking coal needed for its blast furnaces comes from and the necessity of importing it from Australia and the US, as domestic mines have been closed for environmental reasons.
That’s not to make a judgement about the wisdom or otherwise of what the Government is doing, just to note that the UK is pushing back against one form of globalisation: having important companies owned by Chinese interests. What has happened over the past half-century is not simply a matter of shipping goods backwards and forwards around the world.
Another equally important but less obvious thing that has happened is the result of flows of investment capital. Many local enterprises are apparently controlled by foreign interests, while many businesses abroad are owned by UK investors.
Examples are legion. Heathrow, the gateway to London, has nothing much to do with the UK. It is owned by an international consortium from France, Qatar, Saudi Arabia, Singapore, Australia and China.
On the other hand, anyone staying in a Holiday Inn or an InterContinental Hotel anywhere in the world might like to know that it is run by IHG, a British company based in Windsor, Berkshire, a couple of hundred yards from the castle.
What does it mean for the UK?
It’s impossible to determine quite how the tussle between the US and China will evolve or, indeed, how much damage will be caused to other trading nations and blocs, including the UK. We just have to hope that a combination of common sense and self-interest will prevail.
But what is worth saying is the push-back against these very complex global supply chains is nothing new. Think of offshoring being replaced by nearshoring (setting up a base in a neighbouring country), reshoring (bringing operations back to a company’s home country) and friendshoring. The last of those is nice – you try to deal with enterprises and countries that behave in a friendly way.
square HAMISH MCRAE
Trump won't crash the housing market - but prices falls are still likely
Read MoreYou can measure this. The peak of globalisation, as measured by the proportion of goods traded internationally as a percentage of total output, was way back in 2008. There are complicated reasons for this, including the fact that as China developed, its labour costs rose, eroding the price advantage it had earlier. Reshoring and nearshoring made financial sense.
Instead, however, investment flows boomed, and trade in services continued to grow. Trade in services, while still smaller than trade in goods, is particularly important to the UK. More than half our exports – 56 per cent in the third quarter of 2023 – were in services, not goods. It’s widely known that the UK is the second-largest exporter of services in the world, after the US, but less well known that thanks to this, it is the fourth largest exporter overall. That is up from seventh in 2021. Areas in which we are big players include finance, education, legal services, culture, and so on.
This dominance is uneven, for more than half of these exports are from the London region, but it is better to have a boom and try to spread its impact rather than not have a boom at all.
There is still hope for free trade
Most importantly, there is very little pushback against global trade in services. The US certainly doesn’t oppose it, given its own strong position. The EU has sought to exclude London from European financial business, but services exports to the EU rose by 50 per cent between 2016 and 2023.
None of this is to suggest that physical trade no longer matters or that Donald Trump’s tariffs on US imports are the right way to counter the barriers that other countries and trading blocs have imposed on the US. Disruption is never good, and we are getting that in spades.
Easter is about hope. From a UK perspective, we should hope we can build a good relationship with the new administration in Washington and also seek to maintain cordial partnerships with China and the EU.
The big point, however, is that globalisation is evolving, with some high-profile areas in retreat but other, less obvious ones still growing. The prize of a more harmonious trading environment is out there, even if the path towards it looks pretty stoney.
Need to knowThe UK’s lack of appreciation of the importance of services exports goes back at least to the 1960s and probably earlier.
Those with long memories may recall that during the 1960s and 1970s, there was an obsession with the monthly trade figures. Were they in surplus or deficit? What would be the impact on the pound?
The monthly trade figures now include an estimate for services, whereas then, the so-called “invisible” trade numbers were only published every three months and were an estimate. But actually, no one pays much attention to trade now, for it no longer affects markets’ movements as much as it did then. The shift is mostly because the exchange rate can take the strain in the event of adverse economic news (including inflation numbers), but also because financial flows are so huge that one month’s trade doesn’t matter so much.
At any rate, the Bank of England decided that services exports should have a higher profile and founded the Committee on Invisible Exports in 1966. It was funded almost entirely by London financial companies and acted as a lobby group, pushing to boost the City’s business. It gradually extended its work to include other invisible exporters and became the British Invisible Exports Council in 1983. However, the problem of service exports being “invisible” continues today, in that people don’t fully realise their importance. I didn’t appreciate that they had grown from 30 per cent of our exports in 1997 to that 56 per cent figure noted above until I checked the numbers this week.
The really interesting question is whether a country’s position as a services exporter is more secure than one as a goods exporter. Or, put another way, is it harder to build up dominance in services than it is in goods?
Intuitively, I think it is. If you look at Germany’s dominance of luxury car production, a few years ago it seemed impregnable. Nobody else could beat Mercedes or, BMW, or VW’s Audi. While Toyota in Japan was still the world’s largest producer, it could not really break into the very top end. Now everything looks different. The Tesla revolution paradoxically opened the door for China to challenge everybody, and it now makes around 60 per cent of the world’s electric cars.
Never underrate Germany, but the outlook does look tough. But what about finance? Here, there is much concern about London losing business to New York, and there has been some damage post-Brexit, but I had not noticed the boom in exports to Europe over the past few years. What about education? Well, the US universities, for all their problems, remain the only significant challengers to the UK ones. Culture? We have a problem with enterprises like Netflix being much more powerful than any UK competitor. But production facilities in Britain are busy and being expanded.
So, looking ahead, the great question is whether and how swiftly China can build up services exports. No one knows. We know it is trying hard to do so, and with some success. Exports were up 18 per cent in 2024. But somehow, I reckon the US will continue to dominate that game – and the UK will remain number two.
One thing’s for sure: services exports are no longer “invisible”, even if they do not receive the attention they deserve.
This is Armchair Economics with Hamish McRae, a subscriber-only newsletter from The i Paper. If you’d like to get this direct to your inbox, every single week, you can sign up here.
Read More Details
Finally We wish PressBee provided you with enough information of ( The end of globalisation is here – but the UK can still boom )
Also on site :
- Country Star Reveals He Soiled Himself Onstage in Major 'TMI' Moment
- 'Fire Country' Star Stephanie Arcila Goes Inside Gabriela’s Stalker Storyline (Exclusive)
- Donald Trump’s Beef With the Fed