In a recent article in the Spectator, Douglas Murray argues that since the Chinese Communist Party, by accident or by design, has destroyed all the world’s economies except its own through its virus exports, the countries of the world ought to get together and demand reparations. Naturally, this is pie in the sky, but the more serious point, which Murray also makes, is that the rest of the globe, saddled with record debts and deficits, will have no-one to bail them out but the Chinese, whose economy is once more riding high, and whose trade-surplus-fuelled cash mountain is bigger than ever. And with no Trump to stand in the way (another victim of the virus), the Chinese will be in the driving seat.
Is there an alternative? The answer is yes: correct the trade imbalance. For without a trade surplus, there is no accumulation of foreign currency to be recycled in the form of foreign investment. In other words, if we do not buy their cheap consumer goods, the Chinese cannot buy up our assets. Unfortunately, the correction is easier said than done. The traditional remedy of currency depreciation is ineffective because the Chinese are not engaged in classical mutually advantageous free trade but have a mercantilist trade policy: it is by maximising exports and minimising imports through trade barriers that they produce the desired surplus. Moreover, we have become addicted to imports of cheap Chinese consumer goods. Just as we enforced trade with China in the nineteenth century on our terms by getting them addicted to opium, so that we could import their blue and white porcelain in return, the Chinese enforce trade with us on their terms through our addiction to cheap plastic consumer goods, so that they can buy up our assets. Financial bonds, land, property, businesses, universities, nuclear power stations, railways, airports, telecommunications – you name it – they are all up for grabs.
Can we kick the habit? Yes, if we impose tariffs and quotas, tax plastic, move the goalposts, anything that curbs our demand for cheap Chinese goods. The catch is that resources would have to be redeployed either toward export industries, or toward domestic industries producing the goods the Chinese used to supply (import substitution), but now more expensively. Either way, prices in the shops would have to rise relative to wages resulting in cuts in living standards. Moreover, we would need to start investing in our own economy, and that would require us as a nation to stop borrowing and start saving again. So higher interest rates and higher taxes would also be needed.
Would any government dare implement such policies? We have not even begun to count the cost of the virus or of a botched Brexit. Much easier to turn a blind eye. Besides, so long as foreign investment (Chinese money) keeps flowing in, and lucrative directorships are on offer for those who smooth the deals, and City financiers get a cut of the business, our ruling elite are laughing.
Interestingly, the post-war Atlee government faced a comparable economic situation in 1945, only much worse. Britain was bankrupt, its overseas assets had been liquidated to pay for the war, it still had huge overseas commitments, and it faced a colossal balance of payments deficit. In those days there were no international money markets to finance the deficit, no foreign investors on hand, and the Chinese were not yet in business. Britain had to pay its own way in the world and there was a peace dividend to deliver in the form of a promised National Health Service, social security, homes, and universal education. Yet the peace dividend was delivered, and exports doubled in five years. Britain launched half the world’s ships and was the world’s leading car exporter. The price paid by consumers was high since most of what we produced was for export, and wartime rationing was continued for another five years. But the job was done. That Labour government can be criticised for many things in hindsight, not least for missing a golden opportunity to shake up Britain’s decrepit manufacturing sector (see Corelli Barnett’s The Lost Victory). Nevertheless, the achievement was immense.
But Britain today is another country. For all their faults, Clement Atlee, Ernie Bevin, Nye Bevan, and the like were patriots with a highly developed sense of public duty. The British people were patriotic too, more-or-less united in a common cause and a common sense of identity. Now look at us, beholden to the Chinese because of our addiction to cheap imports, and our ruling class’s addiction to financial kickbacks.
On the positive side, we do still have some assets we could sell to the Chinese to finance our consumer habit. Rolls Royce and British Aerospace are still nominally British owned. GlaxoSmithKline and AstraZeneca are the world’s fifth and sixth biggest pharmaceutical companies – the Chinese would surely put their labs and drug development programmes to good use. The BBC and The National Trust could be sold off – the Chinese influence might even improve them. And there are all those British dependent island territories scattered strategically around the world, the remnants of empire. Just think what the Chinese would pay, and the sweeteners they would offer, to get their hands on the likes of Ascension Island, the British Indian Ocean Territory, and the Falkland Islands.
Yes, welcome to Global Britain.