The chancellor’s gamble with China: What price is Rachel Reeves willing to pay for closer trading ties?
Given gilt yields are rising, the pound is falling and, all things considered, markets look pretty hairy back in the UK, it’s quite likely Rachel Reeves’s trip to China gets overshadowed by noises off.
There’s a chance the dominant narrative is not about China itself, but about why she didn’t cancel the trip.
But make no mistake: this visit is a big deal. A very big deal – potentially one of the single most interesting moments in recent British economic policy.
Why? Because the UK is doing something very interesting and quite counterintuitive here. It is taking a gamble. For even as nearly every other country in the developed world cuts ties and imposes tariffs on China, this new Labour government is doing the opposite – trying to get closer to the world’s second-biggest economy.
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How much do we trade with China?
The chancellor‘s three-day visit to Beijing and Shanghai marks the first time a UK finance minister has travelled to China since Philip Hammond‘s 2017 trip, which in turn followed a very grand mission from George Osborne in 2015.
Back then, the UK was attempting to double down on its economic relationship with China. It was encouraging Chinese companies to invest in this country, helping to build our next generation of nuclear power plants and our telephone infrastructure.
But since then the relationship has soured. Huawei has been banned from providing that telecoms infrastructure and China is no longer building our next power plants. There has been no “economic and financial dialogue” – the name for these missions – since 2019, when Chinese officials came to the UK. And the story has been much the same elsewhere in the developed world.
In the intervening period, G7 nations, led by the US, have imposed various tariffs on Chinese goods, sparking a slow-burn trade war between East and West. The latest of these tariffs were on Chinese electric vehicles. The US and Canada imposed 100% tariffs, while the EU and a swathe of other nations, from India to Turkey, introduced their own, slightly lower tariffs.
But (save for Japan, whose consumers tend not to buy many Chinese cars anyway) there is one developed nation which has, so far at least, stood alone, refusing to impose these extra tariffs on China: the UK.
The UK sticks out then – diplomatically (especially as the new US president comes into office, threatening even higher and wider tariffs on China) and economically. Right now no other developed market in the world looks as attractive to Chinese car companies as the UK does. Chinese producers, able thanks to expertise and a host of subsidies to produce cars far cheaper than those made domestically, have targeted the UK as an incredibly attractive prospect in the coming years.
And while the European strategy is to impose tariffs designed to taper down if Chinese car companies commit to building factories in the EU, there is less incentive, as far as anyone can make out, for Chinese firms to do likewise in the UK. The upshot is that domestic producers, who have already seen China leapfrog every other nation save for Germany, will struggle even more in the coming year to contend with cheap Chinese imports.
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Why is Rachel Reeves flying to China?
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Whether this is a price the chancellor is willing to pay for greater access to the Chinese market is unclear. Certainly, while the UK imports more than twice as many goods from China as it sends there, the country is an attractive market for British financial services firms. Indeed, there are a host of bank executives travelling out with the chancellor for the dialogue. They are hoping to boost British exports of financial services in the coming years.
Still – many questions remain unanswered:
• Is the chancellor getting closer to China with half an eye on future trade negotiations with the US?
• Is she ready to reverse on this relationship if it helps procure a deal with Donald Trump?
• Is she comfortable with the impending influx of cheap Chinese electric vehicles in the coming months and years?
• Is she prepared for the potential impact on the domestic car industry, which is already struggling in the face of a host of other challenges?
• Is that a price worth paying for more financial access to China?
• What, in short, is the grand strategy here?
These are all important questions. Unfortunately, unlike in 2015 or 2017, the Treasury has decided not to bring any press with it. So our opportunities to find answers are far more limited than usual. Given the significance of this economic moment, and of this trip itself, that is desperately disappointing.
Ukraine President Volodymyr Zelenskyy has said there is a “good chance” to end the war with Russia.
The embattled Ukrainian president was speaking after he accepted a proposal for a 30-day interim ceasefire and Vladimir Putin stuck to his red lines on needing certain conditions to be met.
“Right now, we have a good chance to end this war quickly and secure peace. We have solid security understandings with our European partners,” Mr Zelenskyy said in a post on X.
“We are now close to the first step in ending any war – silence,” he said, referring to a truce.
Vladimir Putin. Pic: Reuters
He later urged the US and other allies to place further pressure on Moscow and reiterated his belief Mr Putin will delay the ceasefire for as long as possible.
“If there is a strong response from the United States, they will not let them play around. And if there are steps that Russia is not afraid of, they will delay the process,” he said.
Mr Zelenskyy said a ceasefire along the more than 1,000km (600-mile) frontline could be controlled with US help through satellites and intelligence – earlier this week Washington resumed intelligence sharing and military aid after Ukraine accepted the ceasefire.
Mr Zelenskyy also said officials at a meeting between US and Ukrainian officials in Saudi Arabia this week discussed the issue of territory, but a difficult dialogue would be required to resolve it.
“The issue of territories is the most difficult after the ceasefire,” Mr Zelenskyy said.
It comes as Donald Trump said he sees “pretty good vibes coming out of Russia”, and he thinks Moscow will make a deal on the war.
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Ukraine has ‘agreed to ceasefire’
Russia’s invasion of Ukraine in early 2022 has left thousands dead and injured, with millions displaced and towns and cities destroyed.
After three years of war Moscow’s forces now control nearly a fifth of Ukrainian territory and have been advancing since the middle of last year.
“The ceasefire unblocks the way for the sides to end the war. And the territories… will be the point that makes it
possible to end the war after this issue is resolved,” Mr Zelenskyy said.
The Kremlin has demanded Kyiv permanently cede the territory it has claimed.
Mr Zelenskyy also said he was discussing future security guarantees and economic support with Kyiv’s allies, saying 100% air defence cover would be required as deterrence in a peace deal.
Meanwhile, Mr Putin met with US envoy Steve Witkoff to discuss the details of the proposal and has asked him to convey Moscow’s thoughts to Washington, Kremlin spokesman Dmitry Peskov said.
It comes ahead of a video call between Sir Keir Starmer and around 25 world leaders on Saturday, in which he will urge them to make concrete commitments to support Ukraine and increase pressure on Mr Putin to accept a ceasefire.
World
Former president of Philippines Rodrigo Duterte appears in court accused of running death squads
Rodrigo Duterte, the former president of the Philippines, has appeared at the International Criminal Court, accused of crimes against humanity.
The 79-year-old appeared in the Netherlands via video link on Friday.
His lawyer said he was suffering from “debilitating medical issues” but the judge in The Hague, Iulia Motoc, said the court doctor had found him to be “fully mentally aware and fit”.
She said he was allowed to appear remotely because he had taken a long flight.
Wearing a jacket and tie, Duterte spoke briefly to confirm his name and date of birth.
He was read his rights and formally informed of the charges. His supporters contest his arrest and say the court does not have jurisdiction.
If convicted, he faces life in prison.
His daughter Sara Duterte, the current vice president of the Philippines, said she was hoping to visit her father and have the hearing moved after meeting supporters outside the court.
Back home in the Philippine capital region, large screens were set up to allow families of suspects killed in the crackdowns to watch the proceedings.
Police protested over the killings when Mr Duterte was still in charge in 2021. Pic: AP
Prosecutors accuse Duterte of forming and arming death squads said to have killed thousands of drug dealers and users during a brutal crackdown on illegal drugs.
Police say more than 6,200 people were killed in what they describe as shootouts while he was president from 2016 to 2022.
They claim he was an “indirect co-perpetrator” in multiple murders, allegedly overseeing killings between November 2011 and March 2019.
Before becoming president, Duterte was the mayor of the southern city of Davao.
According to the prosecution, he issued orders to police and other “hitmen” who formed the so-called “Davao Death Squads” or DDS.
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Why was Duterte arrested?
Estimates of the death toll during his six-year presidential term vary, from more than 6,000 reported by national police, to 30,000 claimed by human rights groups.
The warrant for his arrest said there were “reasonable grounds to believe that Mr Duterte bears criminal responsibility for the crime against humanity of murder”.
Duterte has said he takes full responsibility for the “war on drugs”.
He was arrested on Tuesday amid chaotic scenes in Manila, the capital of the Philippines, after returning from a visit to Hong Kong.
He told officers “you have to kill me to bring me to The Hague” during a 12-hour standoff, a Philippine police general said.
He also refused to have his fingerprints taken and threatened Police Major General Nicolas Torre with lawsuits before he was bundled onto a government-chartered jet at a Philippine air base and taken to The Hague, Maj Gen Torre told the Associated Press.
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Steve Witkoff didn’t stay long in the Russian capital.
According to footage posted of his motorcade leaving and returning to Moscow’s Vnukovo airport, he was here for little more than 12 hours.
And for most of that, it seems, he was left waiting.
Trump’s fixer leaves Moscow – peace talks latest
US special envoy Steve Witkoff talking to reporters at the White House. Pic: AP
Mr Witkoff, a former property mogul who has become Donald Trump’s chief negotiator, and is often referred to as the president’s ‘fixer’, had been dispatched to Moscow to deliver the US proposal for a 30-day ceasefire to Vladimir Putin.
His visit had been scheduled near the start of the week, following the US-Ukraine talks in Saudi Arabia.
But after arriving around lunchtime on Thursday, he was left twiddling his thumbs for at least eight hours before being called into the Kremlin.
Mr Putin was apparently too busy meeting someone else – Belarusian leader Aleksander Lukashenko – for a hastily arranged state visit that had been announced the day before.
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Is a ceasefire in Ukraine still viable?
Was ally’s visit a classic Putin power play?
We don’t know for sure if the timing of Mr Lukashenko’s visit was deliberate, but it certainly didn’t feel like a coincidence.
Instead, it felt like a classic Putin power play.
Russia’s President Vladimir Putin and his Belarusian counterpart Alexander Lukashenko. Pic: Reuters
The Kremlin leader doesn’t like to be backed into a corner and told what to do, especially on his own turf.
This felt like a message to the Americans – “I’m the boss, I set the schedule, and I’m not beholden to anyone”.
He did eventually grant Mr Witkoff that all-important face time, once night had fallen and behind closed-doors.
We don’t know how long they spoke for, nor the exact details of their discussion, but I think we can make a pretty good guess given Mr Putin’s comments earlier in the evening.
At a press conference alongside Mr Lukashenko, he made it abundantly clear that he’ll only sign up to a ceasefire if he gets something in return.
And it’s not just one thing he wants.
All Russia’s red lines remain
By the sounds of things, he still wants everything.
His comment regarding the “root causes” of the conflict suggests all of Russia’s red lines remain – no NATO membership for Ukraine, no NATO troops as peacekeepers, and for Russia to keep all the territory it has seized.
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According to Russian media outlet Radio Mayak, Mr Putin’s meetings in the Kremlin finished at 1.30am.
Around half an hour later, Mr Witkoff was back at the airport – leaving Russia, it seems – not with Mr Putin’s agreement but with a list of demands.
It’s now up to Mr Trump to decide what to do next.
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