46: Brexit Is Really All About China

editor for Global Economics of Bloomberg News. You no doubt feel bombarded with news and opinions about breggsit, Britain's vote to leave the European Union and why it matters. But have you heard that disgruntled electors in the UK might really have been voting to leave China. More on that in a minute. First, some introductions to two new coho Kate Smith, who is with me here in New York, and Scott Lammon in Washington. Kate, one thing I want to share with our listeners is that, prior to joining

Bloomberg News, you actually covered murders in Baltimore. Yes, which makes me, of course uniquely and absolutely qualified to talk about the global economy, don't you think I think we'll have to do an episode on the economics of inner city crime and Scott. You're an economics editor in d C and you spent three years in Beijing closely observing what's become the world's second largest economy from our office there. Welcome Dan. You know you had the young I asked

you how that the weather was in New York. Thanks back to the UK. Now to expand on precisely why this may have been a vote to leave Beijing rather than Brussels, our guest is Mark Champion. Mark's a writer in our London bureau. He's been covering government in Europe and the Middle East for the better part of three decades. Mark,

Thanks for joining us, and not at all thank you Dan. Now, China wasn't formally on the ballot, but in many ways wasn't the contest a referendum on the enormous changes to the world economic system that's resulted from China's rise. Well, I think that has to be right, even though I

think few Brexit voters would articulated that way. Um, you know a lot more wood point at globalization, you know, all that unsettling change that helped to turn developed economies, especially the UK from manufacturers into service providers, and that caused a lot of you know, churn and turmoil for workers in these countries. And you know, globalization, of course, relies on a free movement of capital and of people. It's the kind of the flat world that the journalist

Tom Freeman likes to talk about. And it's great for people who have globally competitive skills, so you know, people who design stuff and the law as the financiers, and those people tended to vote to stay in the EU. But it is not so great for those who lacked the skills to compete. And you know, these people, they won't meet Chinese workers, but they do meet globalization. It just takes the form of for them of inequality immigration, and it causes a lot of resentment. And that's all

now bubbling over. You know, they blame their governments, they blame the EU, they blame these people and these institutions for just failing to protect them. Now, if you look at the economic changes that have taken place in China and the breakneck pace of growth that's happened since the late seventies when Done opened the place up, China has become emblematic of precisely what these people are rebelling against. Yes, it has. And you know, the other kind of interesting

thing is that China has buy in here. You know what was kind of interesting in the international response to the Brexit campaign be for the vote in particular, but since too it was how you know, the Russian and Chinese responses were different. You know, Russia was just unable to hide its glee at the idea of a Brexit vote, of the EU becoming weaker and the transatlantic lines being weaker, saw it very much in terms of a zero some

political game. But for Chinese leaders, they would just be mused and troubled as to why the UK would want to do such a thing. I mean, they have a big steak in rich consumer economies of the West buying their goods. They like the European Single Market, they like these trading institutions, and they're they're big stakeholders. That's because they're big stakeholders in globalization. And of course, you know the UK, I'm sorry, China is the second largest importer

of goods into the UK, behind Germany, of course. I mean it's eight point seven percent of all of the UK's imports. That's that's not a small number. But I do find it funny that the what we're taught king about is the the average leave voter doesn't see the Chinese immigrant as a threat. You know, physically, they don't

see them, but actually they might start to. I was looking at some immigration stats and at the turn of the millennius in two thousand, China was the eleventh largest immigrator into the UK and I was about ninety six thousand people a year. Well last year they actually jumped to the eighth largest and this is behind, you know, not all countries in the EU, and that was a

hundred and ninety six thousands. So Dan, you know, you started this podcast by saying, you know, the average leave voter might not see the Chinese as you know, the threat to you know, that factory job that they lost in northern England that they can never have again, but they actually might start to, They might start to realize that. And Scott is China the world's largest export of danny and everything. Indeed they are, They're far larger, I think

than the US at number two. It just feels like one of the dominant narratives economic narratives of the last several Dick Aids has been China's ability to attract manufacturing plants from Western companies, assemble the stuff there, and then export it to wherever. Sometimes it's component parts that are being exported for reassembly somewhere else. Now China is moving up the value chain and it certainly is not as

cheap as it once was. But you know, again, it just seems like it's got to be at the core of any discussion we have about globalization. But we also can't forget all the benefits that it has for the average Chinese worker as well. I mean again, in two thousand, you had about five million households who you would kind of classify in that middle income band, and now just last year it was two hundred and twenty five million households.

That is such it's such a large jump. So as we're you know, thinking about those workers, are whoa is me? I don't have my factory job anymore. Like, let's not forget the massive positive impact we've had on a just a miss group of people. What's interesting is that China is actually being subject to the same kind of globalization forces that have affected the Western world, the advanced economies

US and UK. In the last several decades, you have cheaper countries like Vietnam, Malaysia, Indonesia, Bangladesh and so on, where large Western companies are actually moving production and that's why China is indeed having to move up to higher value goods. Now that's not disappearing anytime soon, but it is happening, which just shows you it's not a you know,

a one way street that this is happening. But I actually wanted to ask another question to Mark that we're in the middle of this presidential campaign right now where this does happen every four years, But again, China is being demonized really by both Republicans and Democrats. What are the attitudes towards China on the ground In the UK?

You have a government under David Cameron that tried to bend over backwards to please China win in investment after they had anchored Chinese leaders a few years ago with a visit from the Dali Lama. Is that going to change at all under Theresa May? Is there any of the anger that we have in the US over working

folks jobs being taken away by China. Well, again, it's articulated differently, so I think there's a consensus that the UK would like to export more to China, and ironically, given all the blame on the EU, they'd like to be as successful as the Germans are in exporting to China. So I think there's support for David Cameron when he goes over to China and trying to talk up big

trade deals and investment deals. Their support for that. But then in terms of broader trade deals you have the same hostility there that has developed to the idea of a transatlantic trade deal deal with the European Union that has developed in the US towards the Trans Pacific Partnership. So there are a lot of people upset about that in the UK, which has been a big driver. The government has been a big driver for that deal um

and yet it is increasingly unpopular. And I think that's where you see the kind of hidden resentment of what you know China represents in terms of globalization. But it doesn't necessarily take the form of being upset with doing trade with China. People assume they're going to be importing Chinese goods. They know that they can't make the toys anymore, but they want to have a bigger export market in China Um. What they get upset about is that these

large trade deals. We're going to take a quick break and hear from our sponsor. Hold that thought. Mark will be right back, Limberg. Benchmark is brought to you by Stage Summit, the world's largest gathering of small and medium businesses, featuring Sir Richard Branson July the Chicago Register with promo code business at stage summit dot com. For just now, Mark, You've spent the last couple of weeks traveling around the

United Kingdom talking to people about Brexit. So what would an average Brexit voter in a one time industrial stronghold in northern England, sort of place that gave us the Industrial Revolution? What would they say to the idea that the EU actually isn't responsible for what it is that's

bothering them. They're railing against the wrong target. If they are voting for Brexit, they've been persuaded that the EU is the culprit um and they probably wouldn't be very receptive to, you know, the argument, simply because the Remain campaign has been trying to persuade the otherwise for for some time and they rejected that argument. But you know, I think it is difficult for them. I mean, if you put it a bit differently, the EU is really a symptom of the problem that they are upset with.

You know, people are upset about it for for all kinds of different reasons, you know, issues of sovereignty or identity, even imperial nostalgia for some, but overwhelmingly it's about inequality and immigration. And the EU at route didn't cause those things, but it is very much involved in people's minds, and

it is involved. So you can read the EU in fact as an attempt by you know, European nations to kind of bulk themselves up with a bigger market, a bigger currency, so that they can have a kind of stronger collective defense against globalization. If you just think about trade deals, you know, how do you how do you have weight across the negotiating table with the Chinese? Well, the best way to do that is to have you know, a really big market. Um same goes for anti dumping

disputes and things. You know, market sizes might but then you have people like the German finance minister Volkan Schoebler, and he was just incredulous that the idea of the choice that the UK was making because you know, as he said, you know, choosing splendid isolization, isolation is simply not smart in today's global economy. And that's what he know by rejecting the EU, that's what he thinks and what most of you leaders think the UK is doing.

But the real problem for the EU and making that argument, and which I think is actually a pretty good argument, but the real problem for the U s is doing a very bad job. You know, it's a strong argument for the Leave campaign. Was the point that the euro crisis that Greece, you know, high unemployment, massive youth unemployment in Spain and Italy, um and and just to ask who needs that kind of help. It's interesting the way

some of the historical timelines aligned here. You know, when Britain had its first referendum on EU membership in it was an O O awhelmingly popular thing, something like sixty seven mark voted in favor of membership. And yet it's around that time some momentous changes were beginning to build in China. Now in s Maw was still alive, but he was ailing, and within a couple of years of his passing the following year Done had consolidated power and

the economic history of the globe was never the same. Again, Scott, we just shows that globalization is not a zero sum game. You know that just because China has become a winner and it's it's lifted a lot of boats in China, it hasn't lifted everyone else in the rest of the world. And that's the predicament that a lot of countries are

finding themselves in. Since uh, you knows, as we know, the phenomenon of protesting through votes or however against anti globalization forces is not against globalization forces, excuse me, is not limited to the Brexit vote. So, I mean it sounds like from what we're saying is that the voters in the UK had the right idea, but they hit the wrong target. You know, China has so much worse way over economic forces that shapes the lives of British voters than the EU. Mark. Yes, in the sense that

I think that's right. That the big slogan, the powerful slogan that you know, arguably really swung the vote for the Leave campaign was you know, we want to take back control. And I think that is the ultimate sense that people have that they have somehow they have lost control, lost control of their borders, lost control of economic policy.

The global capital markets are just so large that, you know, governments don't really have the power anymore to make the decisions that people would like them to be making in order to protect them. And so this was a kind of a cry of enough. And you know, whenever you call a referendum, people intend to vote about anything but the question on the ballot. And I think you could argue that that has happened here again, that the EU

was just unfortunate enough to be on the ballot. But if you had a call to referendum on anything that asked people to answer the question are you happy with the way that things are now? The answer would have been known. So if you make the argument that China has really been the driving force and changes in the global economy in the past several decades, then by extension, globalization will ultimately survive breggsit if the EU was a symptom rather than a cause. So this would just be

a glancing blow in a long war. Actually, I think that if you look at the on the ground in China, the evidence of globalization is all around you, and there's a fascination in China with British culture, for example, that there's a housing development on the outskirts of Shanghai that looks like an English town with red telephone booths. Downtonn be is hugely popular. I lived down the street from

a Bentley dealership there. Marks and Spencer, the iconic British department store, has locations in Shanghai and Beijing, as well as three other second tier cities in China. There's tourism ads in the subway for visiting the UK. Just those kinds of ties signal to me at least that this is not a passing fat and that Brexit, you know, it might affect one area of relations, but it's not going to undermine the global tide. Mark. What are your

thoughts on that? Well, I think that's generally right, and you know, optimistically, I very much hope that that's right. But I think that one lesson of Brexit that we should all take to heart is that you ignore politics and the politics of emotion at your peril. It surprises you. Nobody, including the Leave campaign, expected for the Brexit vote to win, and everyone was surprised because they assume that people would

vote in their own economic interests. Instead, they have conducted a vote which in all probability is in it will do them harm. Um And this isn't the first time that we've been through this, you know, there have been ages of globalization before, you know, the period before World War One was a high high watermark of globalization too.

But politics can intervene and in you know, you you could argue that we are kind of in the middle of a sort of modern revolution, you know, where and all the old order is being changed, and assumptions are being over termed, regimes are being changed, are populist parties arising all over Europe? Centrist parties that have had you been around for a hundred years are you know, almost disappearing. And nobody, like with all revolutions, you know, nobody really

has the slightest idea how it will turn out. You can be pretty sure they won't turn out the way that you know, the people making these votes I think it will. The only good thing about it all is that it's happening nowadays, you know, in referendums and and elections and not not violence. Well Mark, we can't thank you enough for adding this perspective for us. We'll follow your reporting around the UK with great interest. They so, Kate, have you heard enough to come back next week? Yeah?

I think I think I'll come back. I think I'll come back. Do you think we should let Scott make definitely? Wait wait wait, I heard that. I heard that Scot on the line. You know I can I can speak English too, not just changing. As for Benchmark, we'll be back next week and until then, you can find us on the Bloomberg terminal and Bloomberg dot com, as well

as on iTunes, pocket Cast, and Stitcher. While you're there, take a minute to rate and review the show so more listeners can find us and let us know what you thought of the show. You can talk to us and follow us on Twitter. You can Scott at Scott Landman. You can find me at by Kate Smith. You can find Dan at Daniel Moss d C. It's like jan Bloomberg.

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