How to be a middle power in a superpower world. With Jenny Bates

Soumaya Keynes (0:01)

Think of the global economy as an increasingly dangerous ocean. The US is a pirate ship. The Chinese are driving a warship. The EU is a great slow merchant ship working out how to arm itself. And the UK is the awkward drifter. Previously tethered to the EU, now unsure what to do with itself.

But time is ticking, and the water is getting choppy. And as the water gets choppier, the other bigger players are increasingly turning to their economic weaponry. The Canadian boat is talking a good game about the middle powers working together. But what does that mean in practice? Can the UK do anything other than dodge the biggest players' cannon fire? Do middle powers have any power at all?

This is The Economics Show with Soumaya Keynes.

This week, I am talking to Jenny Bates, a very senior civil servant in the UK government, but speaking in her personal capacity today. Jenny spent five years as Director of the UK Foreign Office and has just done the Heywood Fellowship at Oxford University, where essentially she got to think big thoughts about Britain's place in the world and how it should adapt to a changing geopolitical seascape. Jenny, welcome.

Jenny Bates (1:28)

Thank you very much for having me.

Soumaya Keynes (1:30)

Okay. We always start the show with a question where the answer has to be on a scale of 1 to 10

So on that scale, how scary is the world for the UK right now? So one is great calm, harps playing in the background, 10 is terrifying, panic stations freak out.

Jenny Bates (1:48)

I would say about 7 So above 5, but not yet panic stations. I think there are things we can do to manage some of the risks that we face as we enter this new period.

Soumaya Keynes (2:00)

Okay. But thinking about those threats, what would you say the main ones are?

Jenny Bates (2:04)

So one obviously is the weaponization of economic levers, the use of economic linkages and the way that they're being used for wider foreign policy ends.

Soumaya Keynes (2:14)

So there you mean Trump's tariffs, China threatening to withhold exports?

Jenny Bates (2:18)

Those kinds of things, exactly. But I also think there are some other challenges that if you're the UK trying to navigate this, you've got the rise of China and its economic model. It's a different kind of economy and it's not become the same as the Western capitalist economies and that's disrupting some of the system.

And you also have other countries pursuing more interventionist economic policy, the rise of industrial policy, the move away from markets, mechanisms, and all of those throw up challenges for the way the UK has done its economics.

Soumaya Keynes (2:52)

So just on that, you mentioned China and the rise of its economy and its sort of different economic model. And obviously one of the biggest economic stories in the world right now is its massive manufacturing exports.

But the UK is mostly a services-based economy, right? We import a lot of manufactured goods and arguably one of the challenges is that we don't really have the same interests as the EU, the US that have much bigger manufacturing bases. Is it really as much of a challenge for the UK as those other powers?

Jenny Bates (3:26)

I think that's a really good question. What I've come to the conclusion in my work is that it is true that China poses less of an immediate competitive challenge in some of the things that the UK is very good at, whether that's financial services or some of those other sectors.

But China's rise and its scale is disrupting many of our partners. It's changing the way those partners are behaving, and it's disrupting the kind of rule system, the way that the trade system has operated. There's of course the question in the medium term, and my project was trying to think 15 years, whether China would become more of a competitive challenge in some of the things that we're good at today, and that's certainly possible.

Soumaya Keynes (4:09)

And just returning to the US, obviously tariffs have been in the news, but there does seem to be increasing fear in Europe about the US weaponizing some of its areas of dominance. If the US wants to hobble our economy, shut down the payment system, shut us off from cloud computing, we would be completely screwed, right?

Jenny Bates (4:29)

Well, the US is still the largest economy in the world. We're hugely integrated with it in the UK. So were the US to decide to weaponize its linkages, that would have very significant effects, not just on the UK, but on a range of other partners.