‘China is the largest threat we face’, says Liz Truss

Britain has been issued a stark warning, as leaked analysis shows that a trade war between the US and China would inflict serious damage to the UK economy.

The document indicates that the UK would need to take an increasingly interventionist approach to the economy as a result of the $369billion (£298.85billion) package of green subsidies, announced by President Joe Biden last year.

It warns Rishi Sunak that he is likely to have to spend billions supporting key national security sectors, such as Artificial Intelligence and quantum computing as a result of the mounting tensions.

The UK has been told not to adopt a “wholesale activist industrial policy” like the US, EU or China because it is only a “mid-sized economy outside major trading blocs”.

The dossier – seen by the Times – adds that it does not have the same “fiscal capacity or economic strengths” as the world’s superpowers.

Instead, it warns that Britain needs to build up a “comparative advantage” in some parts of the economy “that can subsequently be leveraged” in a trade war – such as artificial intelligence and quantum computing – rather than taking a blanket approach to subsidies.

Britain will have to move away from Chinese supply chains as a result of US export controls, the paper warns.

Some industries, such as the semiconductor industry, would therefore require tens of billions of pounds of support from the Government.

Mr Sunak has faced criticism for not taking a harsh enough line on China and having a lack of industrial strategy to deal with the nation.

Barclays CEO Coimbatore Sundararajan Venkatakrishnan urged the Prime Minister to develop a “robust, co-ordinated industrial policy”, warning that the UK must “re-embrace its business-friendly roots”.

Writing in the Times, he added: “Britain voted to leave the EU seven years ago, but has failed to define its new global trading relationships.”

During the leadership campaign last year, Mr Sunak took a hard line on China, pledging to crack down on the UK’s relationship with the country.

But he has since rowed back on this taking a seemingly softened stance on China after he advocated an approach of “robust pragmatism” towards China, which he described as a “systemic challenge” to the UK.

Before being ousted from office, former PM Liz Truss had pledged to officially designate China as a “threat”.

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