DOI: https://doi.org/10.58248/HS108

Overview

The world’s geopolitical and trade landscape is increasingly volatile. Events such as the covid-19 pandemic and Russia’s invasion of Ukraine, which has affected energy security, have exposed significant vulnerabilities in international supply chains.[1] The UK’s allies and partners, including the US, EU and Japan, view China’s growing international assertiveness with concern.[2]

Because of ongoing geopolitical shifts, countries increasingly link their trade and investment policies to national security interests. They focus on decoupling, de-risking, ‘friend-shoring’ and ‘near-shoring’. These trade and supply-chain-related policies aim to reconfigure existing trade patterns to increase trade with like-minded partners and reduce exposure to geopolitical rivals.[3]

Ideas such as ‘change through trade’ and conflict prevention through trade, are under pressure.[4] This can increase the risk of ‘security-washing’, whereby protectionist trade measures are increasingly justified on security grounds.[5]

At the same time, technology is transforming the global trade landscape and creating opportunities. Some contributors to the horizon scan noted that digital transformation is projected to reduce the cost of international trade  and increase trade volumes. This could add $9 trillion (around 10%) to global GDP.[6] For example, AI and new financial technology tools, which compete with traditional banking, could deliver benefits to smaller companies and countries.[7]

The government’s Integrated Review Refresh 2023 focused the UK’s security and foreign policy priorities on national security and economic resilience, given the more contested global environment. The review recognised the interconnection between economic stability and national security.[8]

It introduced policies on investment screening to protect strategic sectors of the economy[9], and assessed the dependence of its supply chains[10], such as the supply of scarce resources including rare earth minerals.[11]

In November 2024, the government reiterated its commitment to “free, open trade” while adhering to ‘securonomics’: a focus on growth supported by the government taking an active role in setting an industrial strategy, a focus on financial stability and economic security.[12]

Despite global challenges, the world economy might not necessarily de-globalise or see an overall decline in trade. In 2024, trade in goods and services has grown after dips during the covid-19 pandemic in 2020 and Russia’s illegal invasion of Ukraine in 2022.[13] However, the future of global trade is uncertain considering potential trade wars and geopolitical challenges.[14]

The main challenges and opportunities

The government may use its forthcoming trade strategy to outline its focus on economic security.[15]

There is no single definition of economic security.[16] While perspectives vary,[17] the debate often revolves around:

  • increasing resilience to risks (for example, through securing supply chains, and protecting critical infrastructure and industries)
  • responding to other countries’ harmful, non-market practices (such as economic coercion or unlawful industrial subsidies)
  • attempting to influence adversaries (for example, through economic and financial sanctions)[18]

However, a lack of common understanding among like-minded countries may hamper cooperation and growth, leading to unnecessary competition for access to scarce resources.[19]

Finding the right balance between support for free trade and national security may involve consulting both trade and security policy experts,[20] who each tend to approach the issues from their own policy objectives.[21]

This will be relevant to the UK’s approach to China. So far, the government has relied on a critical assessment of dependencies and risks while remaining open to constructive engagement with China’s leadership where in national interests, for example, on trade and climate.[22]

To build broad support for economic security measures, participants in the horizon scan said that various stakeholders need to be engaged. The government can be as transparent as possible about threats, such as intellectual property theft and espionage, to help businesses make informed trade and investment decisions. Businesses value clear guidance on sanctions and trade restrictions, as well as an understanding of the national security risks the country faces.[23]

The horizon scan also identified that it will be a challenge for the UK to reestablish itself as a key player in trade with and investment in Africa, with the opportunity for the UK to act as a North-South bridge for development through trade policy.[24][25] Free trade agreements with developing country partners, aid for trade programmes, capacity building, and unilateral preferences such as the Developing Country Trading Scheme may be relevant to the UK’s approach.

The rapid advancement of technology and geopolitical frictions imply growing regulatory restrictions on trade. For the UK as the world’s second-largest exporter of services,[26] this is both a challenge and an opportunity.[27]

Digital trade can offer UK businesses significant benefits by reducing high non-tariff costs associated with cross-border logistics, financial services, and regulatory compliance, which have intensified since Brexit. The UK Electronic Trade Documents Act 2023, which grants digital documents the same legal status as paper ones, is an example of an important advancement.[28]

However, to realise the full benefits of digitisation, international standardisation is required, particularly in regulating data flows, AI, and other frontier technologies.[29] Balancing the liberalisation of digital trade with concerns around security, privacy, accountability of private actors, such as global tech corporations, and protecting labour and consumer rights are major challenges.[30]

Developing support for exporters, negotiating trade deals, and implementing new border regulations (such as the new target border operating model) and UK freeports policy[31] requires that the role and contribution of the devolved administrations are recognised.[32]

Another challenge is to ensure that the benefits of trade are shared widely. This involves choices ranging from the purely economic side of trade to proactive trade policy to promote wider policy aims, such as environment, labour and human rights.[33]

Key uncertainties/unknowns

  • Global geopolitical instability is a major uncertain factor affecting the UK’s trade and economic security policies. Major crises like growing instability in the Middle East or the invasion of Taiwan would pose renewed risks to global supply chains and trade.
  • The strategic choices of the US and China could be decisive. Donald Trump’s second presidency could challenge the stability of the rules-based trading system, and the success of World Trade Organisation reform. China’s strategic choices in trade and security policy will have implications for global trade. This could lead to the rise of more protectionism, further ‘securitisation’ of trade, and result in more fragmented trade alliances.
  • Environmental degradation, climate change and pandemics, could be destabilising factors and will require preparedness and resilience.

Key questions for parliament

  • Has the government got the right approach towards the UK’s economic security interests and its support for the WTO rules-based system for free trade?
  • How successfully is the government protecting the UK’s trade and security interests while at the same time engaging with key partners and allies who have competing interests?
  • Does the government’s approach to global trade, and digital trade in particular, reflect the interests of a wide range of stakeholders, including businesses, consumers, and workers across the UK?
  • What role should wider objectives, such as human rights and sustainability issues, play in UK trade policy and are the tools chosen by the government appropriate and sufficient to reach these aims?

References

[1] Francesca Ghiretti, The United Kingdom Is Late to Economic Security Planning—but Not Too Late,  RAND, 6 September 2024

[2] NATO (North Atlantic Treaty Organization): Washington Summit Declaration, 10 July 2024; NATO Parliamentary Assembly Economics and Security Committee, General Report on Critical Dual-use Technologies: Commercial, Regulatory, Societal, and National Security Challenges, 26 August 2024

[3] NATO Parliamentary Assembly Science and Technology Committee, General Report on China’s Challenge to NATO’s Technological Edge: The Role of Semiconductors, 24 November 2024

[4] Gerlinde Groitl, China and the Fairy Tale of Change Through Trade (opinion), The Royal United Services Institute (RUSI), 9 August 2021

[5] The Trade and Public Policy Network (TaPP), Developments in Trade and National Security: Considering the UK’s role, March 2023

[6] Loughborough University, TechNGI, Workshop on Digital Transformation of International Trade – Stratford, London, September 13th 2022

[7] Loughborough University, TechNGI, Workshop on Digital Transformation of International Trade – Stratford, London, September 13th 2022

[8] HM Government, Integrated Review Refresh 2023: Responding to a more contested and volatile world, CP 811, March 2023 p12

[9] Cabinet Office, National Security and Investment Act 2021, gov.uk

[10] Department for Business and Trade, UK critical imports and supply chains strategy, 17 January 2024

[11] Department for Business and Trade, UK critical imports and supply chains strategy, 14 January 2024; Department for Business and Trade and Department for Business, Energy & Industrial Strategy, UK Critical Minerals Strategy, updated 13 March 2024

[12] HL International Agreements Committee, oral evidence on the World Trade Organisation, 19 November 2024, Q4; Rachel Reeves Mais Lecture 2024, Labour.org.uk, 19 March 2024

[13] UNCTAD, Global Trade Update (December 2024)

[14] UNCTAD, Global Trade Update (December 2024)

[15] Business and Trade Committee. Oral evidence: Export-led growth, HC 649, 21 January 2025; UK Trade Policy Observatory, Trade wars, the transformation of trade policy, and the UK response, in series of Post-election UK trade policy roundtables. Discussion Note Series 2024 (PDF), 18 October 2024; Francesca Ghiretti, The United Kingdom Is Late to Economic Security Planning—but Not Too Late,  RAND, 6 September 2024

[16] UK Parliament, Joint Committee on the National Security Strategy, Oral evidence: UK’s economic security, 29 January 2024, Q2

[17] Evaluating Europe’s Economic Security Strategy, Center for Strategic and International Studies, 13 July 2023; The White House, National Security Strategy, October 2022; Brookings Institute, “Renewing American Economic Leadership”, speech by US National Security Adviser, Jake Sullivan, 27 April 2023; Kazuto Suzuki, Stimson, Understanding Japan’s Approach to Economic Security, 10 February 2023

[18] G7 Leaders’ Statement on Economic Resilience and Economic Security, G7 2023, Hiroshima Summit; UK Parliament, Joint Committee on the National Security Strategy, Oral evidence: UK’s economic security, 29 January 2024

[19] Joint Committee on the National Security, Oral evidence: The UK’s economy security, 25 March 2024, Qq 38-39

[20] WTO: Challenges and Opportunities – House of Commons Library, section 4; HL IAC oral evidence, Uncorrected oral evidence: World Trade Organisation, 19 November 2024

[21] Services trade and priorities for future negotiations | CITP

[22] Commons Library research briefing, CBP-10029 UK-China relations: recent developments

[23] UK Parliament, Joint Committee on the National Security Strategy, Oral evidence: The UK’s economy security, 26 February 2024, Qq 28-29

[24] Chrispas Nyombi, ” The International Investment Agreements of the Intergovernmental Authority on Development” 2019; China in Africa, Implications of a Deepening Relationship 2014; China-UK Cooperation on African Trade and Investment for Poverty Reduction 2015

[25] Gu, J., Holmes, P., Rollo, J. and Snell, S. with Mendez-Parra, M. and Procopio, M. (2017) China–UK–Africa Trilateral Cooperation on Trade and Investment: Prospects and Challenges for Partnership for Africa’s Development, IDS Evidence Report 218, Brighton: IDS; Adebisi Adewole, John J. Struthers, Logistics and Global Value Chains in Africa, 2019

[26] UNCTAD Goods and Services (BPM6) 2022, in Department for Business and Trade, Trade and business facts and figures, 22 April 2024

[27] Centre for Inclusive Trade policy discussion note, Services trade and priorities for future negotiations, 18 November 2024

[28] Commons Library research briefing, CBP-9641, Electronic Trade Documents Bill [HL] 2022-23, 21 June 2023

[29] Commons Library briefing, CBP 10162, Digital trade governance: The UK’s approach, 18 December 2024

[30] Loughborough University, TechNGI, Workshop on Digital Transformation of International Trade – Stratford, London, September 13th 2022

[31] Inverness Cromarty Firth Green Freeport, accessed 5 December 2024

[32] Scottish Government, Team Scotland’s Export Promotion Support: evaluation, 29 November 2023; Scottish Development International, accessed 15 November 2024

[33] Michael Gasiorek, Justyna A. Robinson, Rhys Sandow, Labour’s Progressive Trade Policy: Consultations and policy formulation, UK Trade Policy Observatory, Briefing Paper 81, June 2024


Photo by: AU USAnakul+, via Adobe Stock

Horizon Scan 2024

Emerging policy issues for the next five years.