Why the UK should defend globalisation

On 01 February at 11:00am GMT, the latest Teneo Insights Series: United Kingdom, titled?'What to expect from global trade and investment in 2023',?will hear from Lord Grimstone Kt, Alex Hickman , and Matthew Grainger, discussing global trends for 2023 and their implications for UK business and the wider economy.

Register here:?https://primetime.bluejeans.com/a2m/register/efdfxrhe

The article below was written to accompany this event.

Matthew Grainger and Sam Brown

The arrival of President Biden in the White House was accompanied by an expectation that the US would move away from the more confrontational approach to its international relations characterised by the Trump presidency. To the disappointment of many though, the Biden administration has doubled down on some of the more mercantilist elements of Trump’s policy, stoking tensions not only with China, but also with traditional allies including the EU, UK, Japan, and Korea. Now outside of the EU, the UK is more exposed than others to changes in global norms and will therefore need to be agile in building coalitions to protect its interests.??

Analysis?

In the run-up to the 2020 Presidential Election, Joe Biden campaigned on returning the US to play a ‘leading role in writing the rules, forging the agreements, and animating the institutions that guide relations among nations and advance collective security and prosperity.’ However, several ongoing disputes threaten to undermine this campaign promise and the wider notion of an international rules-based system, underpinned by the US through the second half of the 20th century. The policy of greater self-sufficiency impacted the ability to implement global tax reform. In October 2021, a deal was agreed by 136 countries and jurisdictions to reform global tax arrangements ensuring multinational enterprises would face a minimum 15% tax rate wherever they operate and generate profits. As one of the signatories, the US has struggled to implement the framework. Responding to concerns that US business would face additional tax pressures which could impact growth and employment prospects, plans to integrate the proposals into the domestic tax code in the Inflation Reduction Act were removed so the legislation could receive congressional approval.?

We are seeing a similar picture in the US approach to trade relations as well. President Biden left no doubt about his intentions for 2023, tweeting on 5 January that this was “the year of buying American”. This approach, labelled contemporarily as seeking self-sufficiency, was evident in a December 2022 ruling at the World Trade Organization (WTO) that found the US tariffs levied on steel and aluminium imports from China were inconsistent with international trade obligations. The US Trade Representative’s contemptuous dismissal of the ruling, noting that national security issues could not be reviewed in WTO dispute settlements, shows that the Biden administration are not going to let international trade rules stand in the way of achieving domestic political priorities.??

These actions have not gone unnoticed though and present the trading partners and allies of the US with difficult decisions. Do they rely on traditional diplomacy to try and negotiate opt outs and work arounds to these US measures, or do they follow a more procedural approach and raise official objections at the relevant international institution? China has followed the latter path, filing its own disputes with the US at the WTO, while the EU has recently implemented its Foreign Subsidies Regulations to attempt to redress perceived distortive practices.??

British Consequences?

Both as a key ally of the US and in looking to recover its relationship with the EU, the UK faces difficult choices ahead. Since Brexit, it has sought to align itself closer with the US in some areas, but now must contend with an ally less willing to acquiesce to wider geopolitical strategic objectives in pursuit of its own domestic ambitions. In a more protectionist world, as a mid-tier power, the UK is at risk of being squeezed between competing larger blocs, notably the US, EU, and China. To mitigate these risks, the UK needs to build coalitions with other mid-tier powers on an issue-by-issue basis, expanding areas of partnership and convincing allies and emerging economies that the international rules-based order strengthens global growth and security. Countries including Japan, Korea and Australia are others who have much to gain from this approach and are therefore logical partners.???

As part of its commitment to the rules-based system, it is important that the UK leads by example in its approach. It should continue to prioritise initiatives such as the Trade Advocacy Fund that accentuates the UK’s global influence. Outside of the EU, the challenge for the UK will be managing the various diplomatic tensions and establishing itself as a power that can influence a positive rules-based order. It will need to act through multilateral institutions as well as bi-laterally and pluri-laterally in pursuit of these goals.?

Businesses around the world continue to look for political stability and open trading relations to aid their investment decisions. The move towards increased self-sufficiency is driven by an objective for countries to reduce their exposure to volatility. But with growth being a key driver for the UK, it is overwhelmingly in its interest that all countries play by the rules. If the UK wants to succeed, it will need to encourage its allies and adversaries that the rules-based system is in the global interest.?