As Britain steps out of EU, it trips on new entanglement

Why We Wrote This

Prime Minister Boris Johnson has said the economic price for leaving the world’s largest trading bloc on Jan. 31 will be temporary. But tensions with both the United States and China are putting that promise to the test.

Alberto Pezzali/AP
U.S. Treasury Secretary Steven Mnuchin arrives at Chatham House in London, Jan. 25, 2020, for high-level discussions on trade.

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As Britain steps onto the world stage alone this week for the first time in 50 years – London leaves the European Union on Friday – the government finds itself suddenly entangled in a triangle of tension that will take some deft diplomacy to manage.

Prime Minister Boris Johnson promised that Brexit would pave the way for expanded trade with China and the United States, its two biggest partners after the European Union. But already that is proving tricky.

The British government has proposed a 2% tax on the U.K. sales of high-tech giants like Facebook and Apple. At Davos last week, U.S.Treasury Secretary Steve Mnuchin threatened to retaliate with a tax on British automobiles.

Washington, meanwhile, has been putting heavy pressure on London, and other allies, not to allow Chinese communications company Huawei to play any part in its 5G networks, warning of espionage dangers.

Mr. Johnson opted yesterday to allow Huawei a limited 5G role; that won’t completely satisfy Mr. Trump, but it won’t sabotage Britain’s prospects for more trade with Beijing, either.

It’s looking a lot harder than fans of the new nationalist politics may have suspected to disassemble our intricately interconnected 21st -century world.

It’s looking a lot harder than fans of the new nationalist politics may have suspected to disassemble our intricately interconnected 21st -century world.

That’s the message emerging in recent days from what might be called a triangle of tension. Caught up in the tussle for global supremacy between superpowers China and the United States, Britain is already finding it a strain to navigate its own path outside the European Union.

The main issues of contention concern trade and technology. But they have arisen against the background of another powerful reminder of global connections: mounting concern in the U.S., Britain, and elsewhere over a virus that has spread from the city of Wuhan, in eastern China, thousands of miles away.

The timing of the three-way economic tension is dramatic. Britain, on the heels of last month’s commanding election victory for Conservative Prime Minister Boris Johnson, is about to formalize what he has portrayed as an historic act of national self-assertion. On Friday, after nearly half a century, Britain will end its membership in the European Union.

The promise that Mr. Johnson has held out is that the economic price paid for leaving the world’s largest trading bloc – and Britain’s largest trading partner – will be only temporary. Freed from EU constraints, the argument goes, Britain will be able to seal expanded new relationships with its two other main trade partners, the United States and China.

New tensions

But there have already been early signs of how delicate and difficult such a transition may prove, despite Mr. Johnson’s warm personal relationship with U.S. President Donald Trump.

Indeed, new tensions are tainting the historically close transatlantic alliance as Britain and the United States each adapts to the growing economic clout of China, with which both countries have important trade and commercial ties.

Last week, the annual World Economic Forum of business leaders, politicians, and opinion-formers in the Swiss resort town of Davos witnessed uncommonly frank sparring between Washington and London.

One issue was Britain’s plan for a 2% tax on the U.K. sales of American tech firms such as Google, Facebook, and Apple, a move that U.S. Treasury Secretary Steven Mnuchin called “arbitrary”; he warned such a tax might trigger a similar move against British auto exports.

But the main disagreement involved China, and Britain’s readiness to allow the Chinese company Huawei to play a part in rolling out its 5G telecommunications networks, despite concerted pressure from the U.S. to bar the firm on the grounds that it poses a security risk.

On the technology tax, Britain may yet beat a retreat. France, which the U.S. also threatened with retaliatory moves, has delayed a similar tax until at least the end of the year.

But the Huawei issue could prove tougher to finesse. And it is at the heart of the main geopolitical contest of the new century: the battle between the U.S. and China for political, economic, and, perhaps most of all, technological supremacy.

The two superpowers recently managed to seal a “phase one” de-escalation of their trade war, reducing some tit-for-tat tariffs and holding off from imposing new ones. But Washington’s principal concerns regarding China’s economic and trade practices, such as state subsidies for major Chinese companies, remain unresolved. And on the tech front, no issue is of more immediate importance than Huawei.

Espionage or protectionism?

From China’s perspective, the call to exclude Huawei is simply protectionism – a bid to help U.S. and other Western companies challenge Huawei’s world-leading position as a firm that can build 5G infrastructure more quickly and cheaply than its competitors, such as Finland’s Nokia and the U.S. firm Cisco.

Washington says the fundamental issue is security. Huawei is a private company. But in a centrally controlled country like Communist Party-ruled China, the fear is that a Huawei role in 5G would offer a ready-made back door for the Chinese state to infiltrate and manipulate critical information and technology systems in Western countries.

This week, Mr. Johnson chose to defy intense U.S. pressure to exclude Huawei completely from 5G in Britain, though he attempted to steer a middle road. Huawei’s share in the new network will be capped at 35%. It will be excluded from the core infrastructure and limited to “peripheral” aspects such as base stations and antennae.

That did not satisfy Sen. Tom Cotton, a Republican from Arkansas. “This decision is deeply disappointing for American supporters of the Special Relationship” between the U.K. and the U.S., he tweeted. “I fear London has freed itself from Brussels only to cede sovereignty to Beijing.”

Stuck in the middle

That jibe points to the tricky path Mr. Johnson will have to tread between Washington and Beijing. He does not want to anger President Trump, on whom he is counting for support in achieving a U.K.-U.S. free trade deal. Yet he cannot risk damaging Britain’s increasingly important trade relationship with China; that would have been a real danger if he had sided with the U.S.

And Mr. Johnson still has to find a way to manage a complex web of international connections closer to home: those with the European Union.

Britain will formally withdraw from the EU this week, but the two sides have until the end of the year to agree on new terms of trade unless London asks for an extension. And negotiations on the nuts and bolts of what Brexit will mean in practice may provide an even weightier reminder of how interconnected the world has become.

The political imperatives of Brexit – to unshackle Britain from the constraints of the EU – would suggest a break from existing trade arrangements and from regulatory frameworks shared with the other member states.

But greater freedom from EU regulation will come at the price of less access to EU markets, Brussels has warned. That has alarmed many British businesses that rely on tariff-free trade with Europe or on European supply chains.

Mr. Johnson has a lot of balls to keep in the air.

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