Kemi Badenoch – 2024 Speech at Chatham House

The speech made by Kemi Badenoch, the Business and Trade Secretary, at Chatham House on 7 March 2024.

To understand the role of the UK in the global trade landscape we must describe what that landscape looks like right now.

Everyone in this room is old enough, at least I think everyone in this room is old enough, to have seen for themselves the transformational power of trade.

You don’t have to go as far as back as Adam Smith and David Ricardo to understand the arguments.

Look to Eastern Europe and what’s happened since the fall of the Berlin Wall or to countries in the Indo-Pacific like Malaysia or even China.

As free trade has grown, it is no coincidence that more than a billion people have been lifted out of extreme poverty over the same period.

But I’m not here to give you a cliché-ridden lecture on how great trade is. The case for it is overwhelming yet despite that it has become a tough sell for politicians. I’m here to respond to the criticisms that the UK no longer has a place in the world, and that free trade has been part of the problem rather than the solution.

I’m here to give you reasons for optimism and reasons to be proud about our role on the world stage.

Across the West and beyond, low growth has become a profound and stubborn problem. In many countries, wages have failed to keep pace with rising prices, with lower and middle income families being hardest hit.

Many, as you know, blame free trade. They say we have allowed other countries to steal our lunch, that the momentum is now [with] the BRICS nations.

In trade negotiations I often encounter a belief that trade is a zero-sum game, that if we gain from someone we must lose something in exchange.

Proving that trade within a free market provides mutual benefit is hard when your counter-party believes that the objective is to try and take something from you.

I spent all of last week in Abu-Dhabi at the World Trade Organization’s 13th Ministerial Conference.  This is where the rules-based trading system and democracy come together to have a big row.

I am still baffled at how 164 countries make any decisions at all, given the need for unanimity. I saw a lot of arguments, I also saw some tears.

While the disagreements in Abu Dhabi were not between countries which were pro Israel or pro Palestine, not even really between developed and developing nations.

The principal disagreements were often within the BRICS nations, between those who support free trade and those who don’t.

So it’s a choice between the agenda which the head of the WTO, Dr Okonjo-Iweala Ngozi, is promoting – a forward-looking agenda that is about services, green, digital and inclusive trade and an alternative protectionist agenda ending up as a race to the bottom.

The rules-based system which you often hear about is under threat. One country can stop 163 others from coming to a decision.

The role of the UK here is not just to prevent the WTO from being held back by a small minority but to ensure that it can live up to its founding principles, using free trade as a means to raise living standards, create jobs, and improve people’s lives – something which we have championed right from the very beginning.

When I became the Secretary of State for Business and Trade, I told my team that our mission was to be the Department for Economic Growth.

And I set five priorities to establish how we would deliver on that promise with an outward looking, international agenda.

To remove market access barriers for UK businesses was the first. Second, to grow British exports. Third, to become the No 1 destination for investment in Europe. Fourth, to sign high quality trade deals. And, finally, and most importantly, to defend free and fair trade.

These priorities exist in a world where protectionism peaked just as we embarked on our own independent trade policy.

We took our own seat at the WTO just as many had lost faith in the institution and lost faith in the value of free trade.

We were repeatedly told that without the clout of the EU bloc we would not open up trade with the markets of the future.

And three myths have arisen which are regularly repeated on growth, exports and investment.

The first is that Brexit has hampered our growth, relative to comparable economies.

That is not the case. The IMF predicts that between 2024 to 2028 the UK will outgrow the G7 economies of France, Germany, Italy, and Japan.

And our economy is expected to be 17 per cent larger than France’s by 2035.

The second is that exports have declined.

That is also not the case. The value of our exports in 2016 – the year of the referendum – was £576 billion.

In 2020, the year we left the EU, it was just under £624 billion- that’s including the impact of COVID.

And today our exports are worth over £850 billion […] despite the challenges we’re experiencing following COVID and Putin’s war in Ukraine.

The third claim was that after Brexit investment would dry up.

However, last year, our car sector alone attracted £23.7 billion in investment commitments – more than the past 7 years combined. The UK’s car production is now growing at its fastest rate since 2010.

And the latest figures show that we are the number one destination in Europe for foreign direct investment.

So, we have succeeded, not in spite of embracing free trade, but because of it.

In just a few years, we’ve negotiated more free trade agreements than any other independent country in the world.

In the coming weeks, we will pass our bill [on] the CPTPP – the Comprehensive and Progressive Agreement for Trans-Pacific Partnership […]. This will make over 99% of UK goods eligible for zero tariffs in Asia-Pacific member countries – a region that will drive global Britain over the next few decades.

Of course, it’s easy to produce statistics showing that exports and investments are up.

It’s a lot harder to demonstrate how we are defending the system that we helped create.

I tell my department we should start by not being ‘knowingly naïve’.

By that I mean not blindly believing that just because rules are written, they will be followed or that culture and politics are not relevant and it’s only the regulations that count.

It’s about realism. Realism, realism, realism.

Which brings me to the criticisms that the government typically faces on trade.

When the US brought in the Inflation Reduction Act, there were many calls for the UK to do the same – lots of articles written about how leaving the EU meant we were already in decline.

My response was that copying and pasting policy from other countries is not a strategy.

It is not possible for every economy to subsidise its way to growth. Some will go bankrupt doing that. That will not be us.

At a time when other countries are engaging in subsidy wars, we need to be smart and work with those allies who understand what is at risk.  We have to be pragmatic.

Yes, that means offering targeted support to tackle specific issues facing our economy and yes we want a level playing field for our entrepreneurs so that they can compete globally, but it doesn’t mean hosing industries down with subsidies or slapping tariffs on products from abroad.

Trade wars inevitably fan the flames of global tensions – the very last thing we need right now.

This wouldn’t be a Kemi Badenoch speech without a reference to my favourite economist, Thomas Sowell, who pointed out that trade wars are economically counter-productive.

He argues, for example, that the Smoot-Hawley tariffs played just as great a role in prolonging the Great Depression as the Wall Street crash itself. I agree.

We would be wise to heed his advice because history shows that countries who engage in protectionism and in ‘beggar thy neighbour’ trade policies are always weaker and poorer as a result.

So, we lead by example. We work with allies. We are not alone. Countries like New Zealand, Japan, Switzerland and Singapore and many others are with us.

So in my department, I have to grapple with maintaining a competitive UK steel industry that can stand on its own two feet against a global oversupply of steel, as China floods the market, while also ensuring vital safeguards for the domestic sector. Not an easy trade off.

I have to manage the lowering of tariffs to bring down costs while not undercutting our own producers when other countries are subsidising theirs. Not easy – there is a trade off.

I have to strike the right balance between embracing the import of goods from developing countries to help them grow with the need to maintain the high standards on quality and safety which the British people rightly expect.

We make choices.

Our free trade agreements are helping us make the right choices because they are all about diversification and resilience.

That is what the Indo-Pacific tilt is about, but we need to make sure that the facts are out there. It still baffles me how desperate people are to blame everything on leaving the EU. Because criticisms arrive often because it is the first time many are watching the ins and outs of an independent trade policy, played out live.

These events took place in a black box when we were in the EU. We didn’t have the real-time updates of what was happening with trade negotiations as we do now. It is new. And for those of us who are optimists, exciting. For those of us who are pessimists, scary, and want to make it all go away.

The problems that they see now, we had when we were in the EU, like harmonizing standards and regulations across different trade agreements, or engaging with countries that have exceptionally different and diverse models of trade, or striking deals with countries that don’t have our values of democracy, the rule of law, and a market economy.

But when we encounter these same standard negotiating issues, it’s put down to the UK being isolated or being in decline.  This is not a serious analysis of trade for the 21st century.  It is not serious commentary. Let’s have more realism.

The reality is that the geopolitical climate, and the global conditions for economic security, are more precarious now than at any other time since the Cold War.

In the Middle East, conflict is raging. In the Red Sea, the free flow of trade is under attack, which is why together with our allies we have taken coordinated military action to protect it.

Covid and Putin’s war against Ukraine have permanently reconfigured supply chains.

The challenges in trade we face are different from just a few decades ago. We live in a vastly more interconnected global economy with complex supply chains, cheaper international travel, and the free flow of information.

That interdependence means there can be no retreat into splendid isolation.

We must continue to pursue free trade and avoid the tariffs and taxes which stifle growth and push up inflation.

That open, outward-looking, approach is compatible with protecting our long-term economic security.

We need investors to feel confident in the UK, confident not only that their assets will grow over time but that fraud or illicit finance will never be tolerated.

Through our Economic Crime and Corporate Transparency Act we will make the UK one of the safest places in the world to do business.

Our National Security and Investment Act is preventing the hostile acquisition of assets.

This matters because our power plants, our 5G networks and our critical national infrastructure should never be in the hands of those who would do us harm.

And we are taking similar precautions with regards to exports leaving the UK, updating our Strategic Export Licensing Criteria and significantly enhancing our Military End Use Control.

Our key aim in all of this work is to prevent hostile countries from ever acquiring British weapons or advanced British technology.

And to those who would do harm to us or to our allies, we say that we will not allow you to use your economic might to meddle with another state’s affairs.

The vision of Global Britain remains.  Once mocked as a nation of shopkeepers, we know the value of trade and are staying true to our heritage as a global trading nation that once ruled the waves.

We received a great inheritance from previous generations; it is important that we create an even greater one to hand down to the next.

So, the next time you’re asked what role the UK is playing, you can say that from sanctions to supply chain resilience, we are a global leader in economic security, and we are defending free and fair trade underpinned by a rules-based system.

As you saw in the budget yesterday, we are doing all of this with economic growth at the forefront of our minds.

And I will conclude by saying we have a Prime Minister who is clear-eyed about the opportunities and the challenges that lie ahead.

Where investor confidence in many countries has been shaken, he has sent a loud and clear message that Britain is open for business.

Where there is instability abroad, he has helped to intervene, to bring economic stability at home. He has a plan.

And where countries are embracing protectionism, we are opening up our markets and lowering the barriers to free, open trade – reducing costs and widening choice for the British consumer, ensuring that our economy is strong, resilient and protected from states that threaten us, threaten our allies, and threaten our international security interests.

That is the role the UK is playing on the global stage.