‘If there’s an insight in the book that I think is relatively novel, it’s that the coming tidal wave of car imports from China isn’t just about the finished car. It’s about the stuff that goes inside the car.’
Is the era of globalisation over? This week on The Capitalist, I spoke to Ed Conway, economics and data editor at Sky News and author of Trade World, the follow-up to his bestseller Material World.
While protectionism is clearly on the rise – with Donald Trump’s tariffs as Exhibit A – Ed argues that it’s too soon to say that globalisation has peaked. Yet even if global trade keeps growing in the long run, he thinks we are at a moment where what we prioritise may be changing: giving more weight to security of supply rather than just cheap imports. Free traders would question whether the trade-off is really so simple – British factories benefit from cheap imports too, and access to global markets can protect against domestic shortages. But, he says, it’s a conversation we need to have more openly.
We discussed why he sees the repeal of the Corn Laws as the Brexit of the 19th century and why the US-China trade war looks set to outlast Trump. We also covered why he thinks the real threat from Chinese car imports lies less in the finished cars than in the components inside them.
Below, you’ll find some longer excerpts from our conversation.
Marc Sidwell
Editor, CapX
The Brexit of the 19th century:
‘[The repeal of the Corn Laws] was, in a sense, the Brexit of the 19th century – Britain trying to work out to what extent we wanted to pull down barriers in order to open ourselves up to the world. The reason I think it’s interesting to compare it to Brexit is that it tore apart the Conservative Party in the middle of the 19th century. It was really quite existential for the Tory party at the time… What are we going through right now if it’s not a conversation about the extent to which we want to prioritise cheap things imported from overseas over more slightly expensive things made domestically? That is exactly the debate that Ricardo and Malthus were having more than 200 years ago, which I think is instructive for where we are at the moment.’
What’s inside the car?:
‘For a long time, China struggled to build a viable car industry in the way that Korea and Japan had. We’re now at the point where Chinese car production is incredibly efficient. It’s incredibly good. And one of the prevailing questions is: where are those cars going to go? Is there any car industry left for anyone else, given the enormous capacity the Chinese car industry has? That’s existential for Europe. It’s existential for large parts of the UK car industry. And if your car industry goes, then a lot of your manufacturing goes at the same time… Look beneath the surface of a car and you see 20,000, 30,000 components. Where do those components come from? Historically, that is your manufacturing base – the businesses in Birmingham and the Midlands bashing metal and making plastics, the Mittelstand in Germany, Michigan and Detroit in America. Most of it’s not made by the car companies. It’s made by a host of other companies, most of which are quite small – family firms with 10, 20, 30 employees.’
America v China:
‘Ultimately, this is a story about China and America for the most part. Donald Trump has transformed [trade], with America putting up barriers against everyone. But the thing that is probably most consequential for the global economy is the extent to which the US is at trade war with China, and it’s hard to see that ending. If anything, a lot of people would look at Donald Trump and his various efforts to be diplomatic with China and say the Democrats would be more hawkish on China than Trump would like to be…. [After Trump 1.0, Joe Biden] went further on China. It was Biden who implemented 100% tariffs on Chinese EVs.’
Are we a MoneySavingExpert economy?:
‘I’ve lost count of how many industrial strategy documents have been written over the past 10 years or so. For all of them, you come away from reading them thinking, well, what is our economic model? There’s certainly nothing in those strategy documents that can really explain it to you. A helpful way of framing politicians’ priorities when they’re coming up to a Budget is that they’re thinking about which measures will allow them to stand up in the House of Commons and say, “I’m bringing down the cost of X”, whether it’s fuel duty or standing charges… All power to Martin Lewis. But I think there’s a question mark over whether a fixation on that kind of thing is actually the most sophisticated way to think about your economy.’
Why energy costs are driving industry away:
‘Efforts to change energy policy, sincerely meant, completely backfired, which is what’s happened with a lot of Net Zero policy. I do think there was a bit of bad luck and a bit of misjudgment, but it’s catastrophic if you’re an industrial user of power in the UK. It is uneconomical to be building heavy, energy-intensive plants in the UK right now versus other parts of the world where power costs are far cheaper… So I don’t think life is cheaper here. But given the opportunity to say they are saving you a little on whatever product it is you want to buy, the government loves being able to say that kind of thing. We should start talking about that, so we can work out how to turn it into a coherent and sensible strategy, rather than the bitty inclination it is at the moment.’
We need more ‘I, Pencil’ stories:
‘At the moment, if you’re a consumer, there is no way of knowing the extraordinary journey things have taken and the number of different parties involved in getting them to your hands. I think everyone would benefit from understanding a little bit more about that. Just like the famous “I, Pencil” essay by Leonard Read in the 1950s, about what it really takes to make a pencil, we need more of those stories about what it takes to make anything – this jumper I’m wearing, a loaf of bread or a car.’
