It has taken a global pandemic and a war in Europe for the UK to rethink its economic security strategy. Now, more than ever, the Government should pursue a more balanced trading relationship which factors in national security concerns.
Written by Luke Jones
Vladimir Putin’s devastating invasion of Ukraine has torn up the rulebook and shaken the international system to its core. It, alongside a global pandemic, is a watershed moment that has upended popular assumptions about the global economy.
Weaponised interdependence
To the detriment of European security, the belief that commerce is good for peace and vice versa has proven to be an illusion in the case of Russia. Instead, reliance on Russian natural gas has rendered the continent strategically vulnerable. Roughly 40% of Europe’s total, Russian gas imports amount to an economic umbilical cord.
Moscow has weaponised its interdependence with its Western neighbours by delivering a stark ultimatum: pay for gas in rubles or be cut off. As Putin tosses over the chessboard and wreaks untold devastation on Ukraine, European leaders are left to reconsider how to balance the desire for economic growth with the non-negotiable need for national security.
Energy enters the remit of national security when energy insecurity affects a state’s governing policies. In the case of Putin’s intimidation tactics, this is clearly the case. There are several examples where greater reliance on Russia has translated to weaker action taken, such as Hungary and Slovakia’s 12-month stall on the EU’s oil embargo.
Although not immune from international fluctuations, Britain was able to take quick and decisive action precisely because of its relative independence from Russian energy sources (in 2021 Russian imports made up 9% of oil and of 4% gas used in the UK).
Pandemic re-shoring
Situating the pandemic in a historical context, some analysts speculate that it could mark a 1914-type turning point for globalisation. The pandemic was not only a public health crisis but also an economic one, with a global trade collapse. International trade plunged by 8.9% in 2020, the lowest trough since the 2008 global financial crisis.
Just-in-time processes broke down and manufacturers ‘reshored’ to settle supply-chain chaos. Three-quarters of companies have increased the number of their British suppliers in the past two years, according to a survey by trade body Make UK. Once a settled issue, international trade is now very much unsettled as governments consider whether to use policy tools to relocalise global value chains.
What next?
Since at least 1820, when merchants from the trading cities of London, Manchester, and Glasgow petitioned for the abolition of all duties, free trade has remained an essential part of Britain’s economic history. As a liberal market economy, the UK consistently ranks as one of the most open economies in the world. Total trade makes up more than 60% of the country’s GDP and its dominant services sector thrives under these conditions. Post-Brexit, the Government has rolled-over or negotiated free trade agreements with a catalogue of countries, ranging from Kosovo to Australia. By the end of 2020, the Government had signed off 38 FTAs with 97 countries.
Particularly given its geopolitical position, it would be deeply problematic for the UK to withdraw economically and ‘trust no one’. A whole host of international organisations, from the OECD to the World Bank, have clamoured against re-shoring because of the believed economic fallout that would ensue. Measures commonly taken, such as subsidies and tariffs, are conventionally thought to create economic distortions which actually reduce, rather than protect, the income of countries.
Left unconstrained, globalisation has proven to present a serious national security risk. Rather than return to the old ways, the UK must learn from the lessons of the pandemic and the war in Ukraine. When investors wish to mitigate risks, they diversify their portfolios; the same should apply to countries. A more balanced strategy, which diversifies the country’s trade in areas concerning national security, would help secure a position of strength on the international stage. Clear parameters will need to be set out, such as defining what constitutes a national security risk. By working with businesses, the Government can ensure more flexible adjustment to changing demand and improve risk preparedness.
When it comes to broadband, this new strategy is much more of a reinterpretation than it is a rethink. In 2020, the Government set out its 5G Diversification Strategy. Backed by an initial £250m, the objective was to “grow our telecoms supply chain while ensuring it is resilient to future trends and threats”. This plan demonstrates a willingness across Whitehall to mitigate risks to national security.
Co-opting this idea for energy security, the Government should employ different energy sources, suppliers and transportation routes to prevent overdependence on a single resource or provider. This considered approach could help ensure a strong Britain in an age of uncertainty.
Luke Jones co-founded York Global Affairs while studying Politics with International Relations at the University of York.