Jack Harding, Head of Political Risk

Philip Hammond’s scheduled trip to China to discuss future trading opportunities was called off last week after the defence secretary, Gavin Williamson, suggested that the UK would send the largest of its warships, the HMS Queen Elizabeth, to the South China Sea. According to Williamson, the aircraft carrier would be equipped with F-35 fighter jets and sent to the region by 2021 to join US naval forces on freedom of navigation operations (“FONOPS”).

China is competing with six other regional powers for ownership of the South China Sea and has faced global scorn for its militarisation of the territory. In particular, they have drawn criticism for expansionist behaviour through the installation of military bases on the cluster of small islands within the so-called ‘Nine-Dash line’. Williamson was not the first politician to suggest that creeping Chinese influence in the region needs to be challenged; however, the timing of his speech was poor and grossly overestimated the level of influence that the UK wields today.

Given that Williamson announced the plan two years in advance, it was likely intended as a warning to China and an attempt to appease the Trump administration. China, however, is unlikely to be deterred by the UK’s declaration. Although it does not classify itself as a traditional ‘hard power’, its military spending has increased by a reported 110% since the financial crisis to an estimated $189.5bn in 2017; this dwarfs the UK’s total of around $39bn.

Further, the UK is heavily reliant on China for its trade. It features as the UK’s fourth-largest trading partner with imports and exports worth a combined $80bn, of which imports from China comprise roughly $52bn. The UK’s post-Brexit strategy prioritises the extension of the ‘golden era’ of relations with China. However, with the deadline for Brexit fast approaching and no clear deal in sight, the UK can ill afford more uncertainty with key partners.  

This diplomatic spat is further evidence of the ever-closer relationship between trade and national security in the modern era and is indicative of the impact that belligerent or provocative rhetoric can have on trade opportunities. The UK will have to be far more strategic in its thinking in the future. Expect the South China Sea to continue to feature in the news this week as trade talks between the US and China continue in Washington.

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