The role of trade in foreign policy

Trade and foreign policy are closely linked in today’s geopolitical environment. With more countries willing to use economic policy to achieve political ends, sometimes at the expense of the rules-based system, the way the UK government positions itself in this space is critical.

The CBI has submitted evidence to the International Trade Committee’s inquiry on the role that trade should play in the development of UK foreign policy. The inquiry covers topics such as: how trade deals can be used to promote the rules-based order and transparent trade flows, how trade can be a tool of UK soft power, and how the government should balance foreign policy goals with consumer interests.

How can trade be used to bolster the rules-based order?

The CBI argued that the rules-based system which UK companies rely on must be strengthened and shaped to maintain UK economic competitiveness. The UK must be a leading rule setter at the multilateral (I.e. WTO), plurilateral (I.e. CPTPP) and national level.

Government, businesses and wider society need to work together to shape and deliver rules and standards for the future economy. A renewed World Trade Organisation (WTO) is key to this goal and gives the UK an opportunity to show leadership, work with likeminded partners, and prove its willingness to be a problem-solver on the world stage.

How can trade agreements be used to lay the groundwork for fair, free, and transparent trade?

Trade deals can be a strong tool for the UK to advance fair, free and transparent trade globally.

New deals like the CPTPP, for example, commit members to strong and enforceable standards in environmental, labour, and other categories. These rules benefit British business and will help strengthen the international consensus against poor practices.

However, the CBI noted that trade deals can only flourish if there is a well-functioning set of international rules governing the norms on which countries trade. WTO rules are facing several challenges and will need renewed changes if it is to perform effectively, especially on areas like industrial subsidies.

What role can/should a trade agreement play as a soft power tool to further British interests?

CBI argued that the soft power benefits of trade agreements will differ depending on the UK’s existing relationship with the nation at hand, how developed its economy is, and to what degree the UK effectively ties trade policy with a wider foreign policy approach. But since the UK is a country that broadly supports trade as a positive tool for growth, trade deals are an opportunity for the UK to present itself as a creative and flexible global partner.

How should Government weigh the balance of its foreign policy goals against benefits or concessions for UK businesses and consumers?

Trade and foreign policy are ultimately interlinked and both drive prosperity at home and influence abroad. However, the CBI wrote that many of the UK’s prospective trading partners pose both opportunities and challenges to British interests: the government therefore needs to strike an appropriate balance between geopolitics and geo-economics, enabling the UK to gain in what is a highly competitive landscape for global trade.

Ultimately what business wants from government is strategic clarity (defining and owning the rules of engagement) and to receive consultation on trade-offs. Doing so will help the UK match its competitive G7 allies on balancing approaches to trade and foreign policy.

What has the CBI advised?

The CBI has asked parliament for a clear dialogue between government and business to ensure that trade and foreign policy can complement each other.

Robust business engagement on foreign policy issues will enable the UK to maximize its international competitiveness, uphold the norms and rules of international trade, and develop economic relationships abroad that can boost prosperity at home.

The CBI has also highlighted the importance of inter-agency foreign policy coordination within Whitehall, advising against individual departments pursuing quick wins with foreign partners at the expense of a comprehensive strategy or without considering wider trade-offs of each policy decision.

While the International Trade Committee will use this CBI response to directly influence government policy, the CBI plans to take your business insight and engagement on this topic to future consultations and private engagements with Whitehall.

Speak to John to continue the conversation and make your voice heard on this manner.