Rachel Reeves has highlighted the benefits of trading with China and said the UK government is unlikely to introduce punitive tariffs on imports from the world’s second-largest economy.
In her first interview since becoming chancellor, Reeves told Bloomberg: “We are a small, open trading economy and we benefit from trade links with countries around the world, both for exports and imports, but also for foreign direct investment.
“Our approach is to trade and collaborate where possible and challenge where necessary. However, we do not want to close the British economy to imports and exports. We benefit from these trade relations worldwide, including with China.”
This position is in stark contrast to the United States, which has imposed a 100 percent tariff on imported electric vehicles from China, and the European Union, which has similarly increased duties on Chinese goods.
Economists warn that the rise of protectionist trade policies could drive up inflation and stifle global economic growth.
Britain has become increasingly dependent on service sector exports to manage its growing trade deficit. According to the Office for National Statistics, services exports have increased by around 60 percent in real terms since 2010, while goods exports have increased by just 7 percent and fallen by around 6 percent since the 2016 Brexit referendum.
Reeves acknowledged the challenging fiscal landscape she inherited, suggesting unpopular tax and spending decisions could lie ahead. She indicated that the cabinet’s first budget will likely take place in September or October.
“I have no illusions about the magnitude of the challenge I face,” Reeves noted. “I will not announce tax breaks or changes without indicating how they will be financed.”
Reeves claimed that Britain’s current budget position is the worst since the end of the Second World War. Debt to GDP is at its highest level since the 1960s, and economic growth has slowed significantly since the 2008 global financial crisis.
Rising interest rates over the past two years, aimed at curbing inflation, have increased interest payments on government debt, reducing the scope for significant tax cuts or spending increases.
Government departments are collectively facing £20bn of cuts in real terms, which economists say could put further pressure on already overburdened public services.