Sunak warns against ‘blanket’ protectionism to counter China

Rishi Sunak warned against Group of Seven nations descending into “blanket” protectionism in an effort to tackle China’s economic threat.

The UK is taking a more “targeted and specific” approach in areas where China poses the greatest threat to its economic security, the British prime minister Sunak told the London Defence Conference on Tuesday. There are a “limited number of very sensitive sectors,” such as semiconductors, where the government will take a “particularly robust” approach, he said.

“But this is not an excuse for a blanket descent into protectionism,” he said.

G-7 leaders used a summit last week in Hiroshima, Japan to discuss how to tackle China collectively. They agreed to strive for “constructive and stable” relations even as they pushed ahead with steps to reduce dependence on Beijing for critical supply chains. Rather than “decoupling or turning inwards,” they said, “economic resilience requires de-risking and diversifying.”

In London, Sunak was also asked about the government’s strategy to boost UK manufacturing in response to the US Inflation Reduction Act, amid warnings that companies grappling with the impact of Brexit are being lured by the tax credits and subsidies being promised by the US administration.

The prime minister warned against “subsidy races” and said that instead, he wants to form a “smart set of economic policies” and regulatory changes to support the growth of businesses and sectors. 

“Subsidy races that essentially just shift capacity between allies in some kind of zero sum competition are not appropriate,” he said. “We shouldn’t be doing things at the expense of each other.”

It marks the strongest language yet from Sunak amid growing pressure to do more to support firms. Last week, Stellantis NV, the maker of Vauxhall and Peugeot cars, warned that assembling cars in Britain is at risk of becoming too expensive due to new post-Brexit trading rules. 

But Sunak’s answer also contrasted the more nuanced tone taken by Chancellor of the Exchequer Jeremy Hunt last week when he said subsidies “have a role” to play and promised to ensure the UK remains competitive.

The government is considering how it will respond and will provide an update by the fall, Hunt said, adding he’d been waiting to see the European Union’s response before making a decision. The bloc announced its Green Deal Industrial Plan in February, which includes investment aid and tax credits.