How to be a middle power in a superpower world. With Jenny Bates
The Economics Show
Host Soumaya Keynes interviews Jenny Bates on how the UK can navigate an increasingly volatile global economy defined by superpower competit
Key takeaways
- The global economy is shifting toward 'economic weaponry,' where tariffs and export controls are used for foreign policy ends.
- China's rise disrupts the existing trade system even in sectors where it does not directly compete with UK services.
Main topics
- Geopolitical economic weaponization
- UK middle power strategy
Notable quotes
The US is a pirate ship. The Chinese are driving a warship. The EU is a great slow merchant ship.
Conclusion
Success for middle powers depends on their ability to diversify supply
Transcript preview
Speaker 1 (0:00) Think of the global economy as an increasingly dangerous ocean. The US is a pirate ship. The Chinese are driving a warship. The EU is a great slow merchant ship working out how to arm itself. And the UK is the awkward drifter, previously tethered to the EU, now unsure what to do with itself. But time is ticking, and the water is getting choppy. And as the water gets choppier, the other bigger players are increasingly turning to their economic weaponry. The Canadian boat is talking a good game about the middle powers working together. But what does that mean in practice? Can the UK do anything other than dodge the biggest player's cannon fire? Do middle powers have any power at all? Speaker 1 (0:58) This is The Economics Show with Samaya Caines. This week, I am talking to Jenny Bates, a very senior civil servant in the UK government, but speaking in her personal capacity today. So Jenny spent five years as director of the UK Foreign Office and has just done the Haywood Fellowship at Oxford University, where essentially she got to think big thoughts about Britain's place in the world and how it should adapt to a changing geopolitical seascape. Jenny, welcome. Thank you very much for having me. Okay. We always start the show with a question where the answer has to be on a scale of 1 to 10. So on that scale, how scary is the world for the UK right now? So 1 is great calm, harps playing in the background. 10 is terrifying, panic stations, freak out. Speaker 2 (1:48) I would say about a 7. So above 5, but not yet panic stations. I think there are things we can do to manage some of the risks that we face as we enter this new period. Okay, but thinking about those threats, what would you say the main ones are? So one, obviously, is the weaponization of economic levers, the use of economic linkages and the way that they're being used Speaker 1 (2:12) for wider foreign policy ends. And so there you mean Trump's tariffs, China threatening to withhold exports? Those kinds of things, exactly. But Speaker 2 (2:21) I also think there are some other challenges that if you're the UK trying to navigate this, you've got... the rise of China and its economic model. It's a different kind of economy and it's not become the same as the Western capitalist economies and that's disrupting some of the system. And you also have other countries pursuing more interventionist economic policy, the rise of industrial policy, the move away from market mechanisms, and all of those throw up challenges for Speaker 1 (2:50) the way the UK has... done its economics. So just on that, you mentioned China and the rise of its economy and its sort of different economic model. And obviously, one of the biggest economic stories in the world right now is its massive manufacturing exports. But the UK is mostly a services-based economy, right? We import a lot of manufactured goods and arguably one of the challenges is that we don't really have the same interests as the EU, the US that have much bigger manufacturing bases. Is it really as much of a challenge for the UK as those other powers? Speaker 2 (3:26) I think that's a really good question. What I've come to the conclusion in my work is that it's... It is true that China poses less of an immediate competitive challenge in some of the things that the UK is very good at, whether that's financial services or some of those other sectors. But China's rise and its scale is disrupting many of our partners. It's changing the way those partners are behaving and it's disrupting the kind of rule system, the way that the trade system is operated. There's, of course, the question in the medium term, and my project was trying to think 15 years, whether China would become more of Speaker 1 (4:05) a competitive challenge in some of the things that we're good at today. And that's certainly Speaker 2 (4:08) possible. Speaker 1 (4:09) And just returning to the US, I mean, obviously tariffs have been in the news, but there does seem to be increasing fear in Europe about the US weaponizing some of its areas of dominance. You know, if the US wanted to hobble our economy, shut down the payment system, shut us off from cloud computing. we would be completely screwed, right? Speaker 2 (4:29) Well, the US is still the largest economy in the world. We're hugely integrated with it in the UK. So were the US to decide to weaponise its linkages, that would have very significant effects, not just on the UK, but on a range of other partners. I mean, we haven't seen that happen. to date. I think, though, the bigger question is about how the US sees its role in the world. What is it that it's trying to do? What are its objectives? And that's something that has been structurally changing underneath. Speaker 1 (5:02) I guess my question, though, is whether the UK has experienced the same increase in fear as seems to have been experienced in the EU when it comes to concerns that it could shut off the payment system. I think There was an instance of sanctions that essentially completely cut off some people from having a functional life and that really freaked out some European policymakers. And whether here the perception is, ah, they're our buddies, they wouldn't do it to us, or actually there is that change in attitude towards the US. I Speaker 2 (5:36) don't know that I can say that there's been a particular change in attitude in the UK, specifically to the US, in that. way. But what I'm advocating in my work, and I know it's something you've put in your book, is I'm saying, and it's quite an unusual thing, I think, for someone from my background, I was trained in economics, I started in the Treasury, and I'm effectively saying the UK needs to work out where it's got leverage and know how to use it. And I'm not targeting that particular partner. I'm just saying that the UK needs to be able to do that. I Speaker 1 (6:07) also think we need to Speaker 2 (6:10) try and think of ways of applying leverage working with others. And so I talk in my work about that, about how you could partner up with other affected countries. Speaker 1 (6:18) Yeah, I guess sometimes I detect a certain unwillingness of folks kind of very close to policy making to call out specific partners, right? There's almost a sense that, you know, if you say, well, we've got to develop this weapon to defend against coercion from the US, then that might itself kind of... illicit retaliation which which would be a problem do you think there is a kind of you know sense from the bigger players that they don't want the smaller players developing their kind of economic defenses I think that's a very good question. I think some of it is it's just good diplomacy, not to necessarily specifically target another partner. And probably there's Speaker 2 (6:59) a Speaker 1 (6:59) bit that you're getting from Speaker 2 (7:00) government officials. Some of it is the challenge is we don't know what world we're going into. And by definition, those strategies are not particularly country specific. They are about having a range of tools in your toolkit and flexibility in how you deploy them. So I think it's a bit that. Speaker 2 (7:20) In terms of whether the other partners care about what middle-sized countries are doing, I think they pay slightly less attention, actually, to what the middle powers are doing. It's one of the interesting things. There's a lot of focus on the big powers. So I'm not sure it's always fronts in their minds. Speaker 1 (7:38) Okay, let's talk about these middle powers. So we've got Mark Carney, Canada's Prime Minister, giving some very good speeches. But... The pessimistic take is, okay, these middle powers are by definition less powerful than the big guys. They are terrible at cooperating with each other. And so the idea that you're going to get this coalition working together is just fanciful. And realistically, all the middle power can do is just find a big power and cling onto them and sort of hope for the best. What is your take? Can the middle powers do anything constructive together? Are there historical examples of them doing that? Speaker 2 (8:17) Yeah, so I'm much more on the