How exposed is the UK economy to the second China shock?

{"text":[[{"start":7.32,"text":"As China’s goods exports soar and its imports sag, its biggest trading partners are reacting differently. The Americans are taking a “not our problem” attitude, while (re)building their tariff wall. The EU is anxiously considering new trade barriers but struggling to agree on the details. What of a middle power such as the UK? As “China shock 2.0” hits, can this small island relax and let the cheap stuff roll in?"}],[{"start":33.44,"text":"The most basic argument in favour is that Britons are acutely aware of the cost of living, and embracing China’s output means lowering it. Over the past couple of years, UK goods prices have risen by 2.4 per cent. Megan Peters of Goldman Sachs has estimated that the force of China’s trade flows prevented them from rising by a further 0.8 percentage points. Who doesn’t want a cheap electric car or bus to help with the green transition?"}],[{"start":59.76,"text":"Other arguments include the claim that “making stuff” is no longer core to the UK’s economic identity and although the UK is still a trading nation, its speciality is professional services. Whereas the first China shock in the early 2000s caused pockets of economic pain, today there are fewer manufacturing workers to be disrupted by import competition."}],[{"start":null,"text":"

"}],[{"start":80.54,"text":"Outside some selected grumblings from makers of products including steel, bicycles and ceramic plates, businesses don’t seem to be wailing about waves of unbearable Chinese competition. And when the government erected barriers against traded steel at the start of July, importers certainly made their complaints heard. Perhaps, having been forced by high energy and labour costs to specialise in more sophisticated, bespoke production, the UK just isn’t that exposed."}],[{"start":107.68,"text":"Now for the arguments for caution. Even if you don’t agree with Prime Minister Andy Burnham that re-industrialisation promises great riches, in this age of geoeconomic conflict giving up entirely on manufacturing seems risky. And while China’s growing share of UK imports alongside the UK’s shrinking share of Chinese imports could be entirely healthy, it could also set the stage for dependence and economic coercion."}],[{"start":null,"text":""}],[{"start":131.48,"text":"Comparing the UK with other major economies, it does seem less exposed to Chinese competition. Based on indices of goods trade similarity constructed by some economists at the Federal Reserve, the UK’s mix of imports looks less similar to China’s mix of exports than those of the EU or the US. The UK also seems relatively secure in third markets, given its exports have less overlap with China’s export mix than those of the EU, the US or Japan."}],[{"start":160.48,"text":"That said, when considering China’s market itself, the UK’s goods exporters seem to be in an increasingly tough spot. China seems not to want the mix of products the UK is selling, given the relative dissimilarity of the UK’s exports and China’s imports. (Canada and the US do better on this measure, thanks to their energy sales.) And since 2019 the mismatch has grown, along with those of the EU and Japan."}],[{"start":null,"text":""}],[{"start":185.18,"text":"Moving to more granular trade flows, the UK government is wary of dependencies that leave manufacturing vulnerable to disruption. At a recent parliamentary hearing, then trade minister Sir Chris Bryant shared that there were 4,482 types of goods sourced from China in 2024-25, of which 3,380 had few alternative suppliers, and 911 were “critical to the UK”, concentrated in chemicals, manufactured goods and machinery."}],[{"start":214.28,"text":"Still, British manufacturers seem more eager to complain of expensive energy than moan about Chinese competition. In that same hearing, Bryant noted that British businesses weren’t particularly keen to engage with the process of asking for new trade barriers. That is probably partly because Britain-based manufacturers are reluctant to risk retaliation in a market that for now is both supplying inputs and delivering international sales."}],[{"start":238.72,"text":"So far, the UK government’s strategy has been on the relaxed end of the spectrum, monitoring the risks associated with the UK-China trade relationship while reaching for rewards. It has not applied the same barriers to Chinese cars as the EU, for example, allowing imports to grow quickly. Two days after Bryant’s hearing, his boss met Chinese minister of commerce Wang Wentao to commit to a joint feasibility study of a trade agreement covering services."}],[{"start":265.32,"text":"In the short term, the greatest threat to this approach might not be from China weaponising its dominance or overwhelming British manufacturers with their strength. Rather, it could be from the EU, miffed that their manufacturers are being outcompeted in one of their most important markets. A casual attitude could be fine — until one of the bigger trading powers decides that they don’t like it."}],[{"start":291.12,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1785395386_1970.mp3"}