UK looks to wean itself off Chinese imports

Boris Johnson’s government is drawing up a strategy to reduce the UK’s reliance on China for key imported goods, as ministers acknowledge that a combination of the coronavirus pandemic and Brexit will force a big shake-up of the country’s supply chains.

The planned overhaul will aim to implement the results of “Project Defend” — an internal exercise to ensure Britain retains access to critical goods while diversifying the country’s trading relationships.

Those working on the project, which is overseen by foreign secretary Dominic Raab, stressed it was primarily about strengthening the country’s trade links in the wake of coronavirus but would also lead to the production of some critical goods being brought back to the UK, after the pandemic exposed the UK’s reliance on imports. 

“Reshoring everything doesn’t fit with our ambition to be a champion of free trade,” said one person briefed on the talks. But a recurring theme of the discussions has been the need to reduce Britain’s reliance on trade with China, the second-biggest source of imports by value after Germany.

The Covid-19 crisis has forced ministers to confront the lack of domestic sources of critical medical supplies, such as protective equipment, vaccines and certain chemicals, after the pandemic led to global shortages.

But the Project Defend team also looked at the need to ensure Britain was able to source other vital equipment in future such as transformers and telecoms kit, which were vital for national security

Ministers are looking to develop supply chains that do not rely on China in “lower risk” areas, after Beijing’s move to tighten control over Hong Kong and its handling of the Covid-19 crisis further raised tensions with the UK.

“We could build up trade links with other Asian countries,” said another person briefed on the talks. Liz Truss, international trade secretary, is exploring the possibility of a free trade agreement with India. Ms Truss has also begun talks on an FTA with Japan, as part of a global drive to strengthen supply chains after Brexit.

Strengthening trading relations with India, the world’s biggest supplier of generic drugs such as paracetamol, is seen as crucial; early in the pandemic New Delhi limited exports of certain generic drugs and ingredients used in them.

The UK chemicals industry is talking to ministers about “reshoring” some generic manufacture, reducing the country’s dependence on India and China for active pharmaceutical ingredients.

In “higher risk” areas — such as technology and other products with a security component — ministers are focusing their efforts on co-operating with “like-minded” countries to develop alternatives to the technology supplied by companies such as Huawei, the Chinese telecoms group.

Although that could involve Britain’s “five eyes” security partners — US, Canada, New Zealand and Australia — the Project Defend strategy has also underlined the strategic importance of co-operating with the EU27 after Brexit.

Ministers have also started identifying areas where Britain will need to ensure critical supplies in a “green economy”, including guaranteeing the availability of lithium used in batteries.

Given that Project Defend has concluded that Britain will not generally adopt a “go it alone” strategy on critical goods, ministers are also planning to beef up port facilities at Harwich, Essex, to avoid a potential trade bottleneck on the Dover-Calais route.

Ministers are conscious that the crucial “short straits” route is susceptible to disruption — for instance from blockades by French fishermen, strikes or new post-Brexit customs checks — and want to build up alternative routes.

Michael Gove, Cabinet Office minister, conceded last month that the new customs and regulatory checks imposed by Brexit on trade with the EU could force some UK businesses to “look at how they organise their supply chains”.

Mr Gove said that while the UK was seeking to sign new trade deals with the US, Japan and others, he believed that the overall impact of Brexit and Covid-19 would be to see some “reshoring” in Britain.

“Because of Covid-19 but also because of other changes that were happening technologically anyway, we have seen a phenomenon of reshoring and we are seeing how countries have to value increased resilience,” he told MPs on the Commons committee looking at the post-Brexit deal.

“It is impossible to state precisely, but the shape of the UK economy, like the shape of member states’ economies in the EU, is going to change.”

Brexit could allow Britain more freedom to use state aid to incentivise UK companies to make critical products, while ministers have reserved the right to “force” them to onshore production of the most sensitive products.

Tom Tugendhat, Tory chairman of the Commons foreign affairs committee, said it was right for Britain to buy less from China, adding that it was “about how we partner with others, whether that is with Japan or France”.

Labour’s Pat McFadden, the shadow Treasury minister, said while “every country will be looking at how it prepares in the future” after absorbing lessons from the pandemic, the complexities of global trading system meant international supply chains “can’t just be switched off”.

Mr Johnson’s response to the work of Project Defend is likely to be developed in coming weeks as he sets out a Covid-19 recovery plan, including bolstering manufacturing in the Midlands and the north of England.

Government officials have held conversations with businesses and trade groups about resilience and diversity of the UK supply chain, according to two people familiar with the matter, with the focus on how to reduce reliance on any one country or region.

They said there had not yet been any specific discussions about a change in manufacturing focus but ministers were also looking at broader changes to the UK’s industrial strategy.

 

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