William Hague’s second speech detailing British foreign policy goals was given in Tokyo, and it was no accident, it focused on economic goals and in particular Britain’s aim to secure the national interest by maximising British economic potential. There are many interesting parallels between Britain and Japan, and certainly Japan’s place as the worlds second largest economy and its most technologically advanced are worthy of Britain’s attention, but it is its geographic situation that is paramount.

Japan is a proxy for British history in this situation.

Hague continued on with the themes outlined in the previous speech discussing the rise of developing powers, the reality of the modern networked world, the importance for Britain to work with other to maximise its influence, and the use of cultural exchange to build diplomatic relations, and all of these things are important in and of themselves, but the real purpose of their mention is to build the argument that Britain will not be swayed from its determination to be a part of the worlds economic future, as the primary method of preserving its current prosperity.

Britain is a trading nation, earning its wealth in large part by encouraging foreign nation companies to invest in it, and likewise British companies investing abroad. Each year Britain receives $1.35 billion in foreign direct investment, second in the world, and invests $1.65 billion abroad, third in the world after France and the US. Britain’s wealth depends on the free trade of goods and the services, however for this openness to work a ‘small’ country like Britain depends on a level playing field.

While Britain has free-trade written deep into its DNA this cannot be said of many of our closest partners; the USA has long been of a protectionist bent if only by dint of its own massive and largely self sufficient internal market, this too is the goal of many within the EU a goal long fought by Britain in its attempt to seed free market principles with the EU’s economic commission. It is here that Britain will seek to wield its influence, or not, as leverage against economies that represent much of the worlds future growth and yet seek to do so by restricting foreign access to that growth. It is within our gift to relax the reins on the protectionist tendencies of our european partners in particular if we feel leverage is required.

China is the focus of this warning, though more generally it stands for all countries that seek to hobble liberalised trade of which the stalled Doha talks are but one example, and thus the reason for picking Japan as the host for this talk.

China, soon to be the largest economy in the world is quite happy to buy into the British economy, and yet British businesses among those from many other nations find themselves unable to partake in the Chinese economy in a like manner. Regulation and bureaucracy always appears more onerous for non Chinese companies, investments subject to more state interference, and tariffs and non-tariff controls unreasonably high. It is understood that China feels it must protect its delicate growth model but it must understand that it comes at a cost to its trading partners, and perhaps an unreasonably high cost. According to the Carnegie Endowment Fund a lapse into protectionism could see Britain’s economy a third smaller than it would otherwise by by 2050, a reduction of $1.7 trillion, a more grievous blow than suffered by even export oriented nations such as Germany that would shrink by around a quarter. This is why Hague is determined that British ambassadors should become agents of economic policy as well as political, because he sees Britain’s future prosperity being intimately tied to its future a europes leading high-tech exporter.

China’s fixed currency, for all that it has been allowed to ‘flex’ a little within these tight constraints is maintained a level that distorts its balance of payments with other nations, a factor exacerbated by its merchantilist tendencies, and a trend that must be discouraged before it becomes a norm in the global markets.

It is for this reason that Hague talked of Britain being an inspiring example to other nations in its aims and practices; we will remain open to you provided you will do likewise, and should you choose not to cooperate British diplomatic leverage will be used to its fullest extent within the international bodies to which we are members to influence other nations to support this stance.

And here lies the crux of the argument for why Japan was chosen as a venue for his speech on global economics, and why the parallel was drawn between Britain and Japan as analogues sat astride America on different oceans, because both are in a position to catalyse a greater effect on international affairs as a result of their geography. Britain during the Cold War through its network of allies was in a position to halt Warsaw pact ambitions by acting as an unsinkable aircraft carrier from which action could be effected to thwart the ambitions of a superpower. Japan in the 21st century, as a major regional power networked through a multitude of ties such as the G7, G8, G20, WTO, etc, can be seen as an economic analogue that would act as a bulwark against the ambitions of its continental neighbour deemed threatening to the prosperity of a broader group of nations. In short it is a reminder of the effect that can be achieved by common action using a historical example as an illustration.

Thus why Britain will advocate Japan’s accession to the UN Security Council, and seek to boost cultural and economic ties between the two nations, for it sees a powerful ally with a common interest in maintaining the free movement of goods and services.

Hagues second speech while limited in its message, and veiled in its intent, is in fact grand in its ambition; it seeks to make china a participant in international economic welfare, and in doing so ensure that the rest of the developing powers follows suit.

Update – 25/07/10

Britain is lagging behind its European competitors in promoting its companies in emerging economies, the foreign minister of Kazakhstan, the fast-growing Central Asian nation, has said.

Kazakh foreign minister Kanat Saudabayev warned Europe Minister David Lidington of the UK’s weak performance in a meeting on Friday in the country’s commercial capital, Almaty. “The point was made to me by the Kazakhs that Germany and France have been very active here for some time,” Mr Lidington said after the meeting. Update 28/07/10 Der Spiegel on China’s effective use of Soft-Power: The Communist Party leaders manipulate their currency to keep the prices of their exports artificially low. The fact that they recently allowed their currency, the renminbi, to appreciate slightly is evidence more of their knack for public relations than of a real change of heart. They are known for using every trick in the book when buying commodities or signing pipeline deals, with participants talking of aggressive and pushy tactics. Meanwhile, these free-market privateers unscrupulously restrict access to their own natural resources. They denounce protectionism, and yet they are more protectionist than most fellow players in the great game of globalization. Update 02/08/10 – The battle to control the supply of rare earth metals is hotting up: Lack of strategic planning by the West has allowed China to acquire a world monopoly on this family of seventeen metals. Assumptions that Beijing would never risk its reputation as a global team player by abruptly strangling supply have proved naive. Once again we see how China plays the globalization game, taking full advantage of WTO access to western markets without opening its own to the same degree, and all the while holding down its currency for mercantilist gain.