Why Rachel Reeves finds herself in a difficult place with China on trade

Rachel Reeves will certainly be between a rock and hard place. Doing a future deal for no or lower tariffs on Chinese made EVs won’t help with the rebuilding the relationship with the EU

Tony Burke is the Co-Chair Of The Campaign For Trade Union Freedom

Chancellor Rachel Reeves has announced she is to visit to China in early 2025 as part of Labour’s plan to boost international trade through free trade agreements and inward investment. In doing so she is looking to revive the UK-China Economic and Financial Dialogue Summit last held in June 2019  when Tory Phillip Hammond was Chancellor.

In September this year she spoke with He Lifeng, China’s vice premier – after which the Chinese media reported that Beijing was willing to restart the economic and financial dialogue with the UK. China will be looking for support in its bid to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership which the UK will accede to in December.

But much now depends on the outcome of the growing row over tariffs on electric vehicles with the European Union – and the outcome of the US presidential election.

Recently EU leaders voted to increase tariffs on Chinese EVs coming into the EU when 10 members gave the go ahead for increases in tariffs of as much as 35.3% on top of existing 10% tariffs.

Germany opposed the move saying it would damage the auto industry, but increased EU tariffs are expected to come into force in November. The new EU’s tariff’s will have  major ramifications as western countries begin to decouple from China, especially in digi-tech and green sectors.

The USA already has 102% tariff on imported Chinese EVs. Trump says that he will confront China directly, by decoupling the USA from China’s economy for economic and national security reasons including revoking China’s ‘most favoured nation’ status.

This includes a four year plan to phase out Chinese imports of essential goods, restricting outbound investment in China, as well as inward Chinese investment in the USA.

And there is a sting in the tail. Trump says he will not only impose a potential  ‘universal tariff’ of 60% on goods imported to the USA from China but will force countries with whom the USA has free trade agreements and its ‘allies’ expecting  them to fall in behind him as well as imposition tariffs on everything imported into the USA.

This would leave the Labour government with a major headache as the UKs relationship with China which is very different to the USA – the size of the US economy gives it more options and unlike the USA no UK law currently bans Chinese products.

Keir Starmer has promised a ‘UK -China audit’ within his first 100 days and Reeves’ ‘Securonomics’ plan to bring domestic, trade and foreign policy together will be incompatible with Trump’s protectionist agenda.

As well as EVs Trump could try to force the de-coupling of UK and EU digi-tech firms in cases where personal data flow to China as happened with Huawei telecoms equipment and the halting the sale of Nexperia — a British semiconductor company — to a China-linked company.

Labour’s Industrial strategy will also be tested. As Autotrader magazine recently said: “The Chinese are on our doorstep with offers of advanced electrified products that are arguably more enticing than those of any predecessor”.

With the new MG EV selling at under £22,000 and earlier models even cheaper, China will probably be seeking zero tariffs and Reeves will be expected to push for the Chinese to build a proposed European plant in the UK and not at low cost in Central Europe. 

Rachel Reeves will certainly be between a rock and hard place. Doing a future deal for no or lower tariffs on Chinese made EVs won’t help with the rebuilding the relationship with the EU – and any possibility of improving an already strained relationship with Trump maybe nigh on impossible.