Economic Disaster In Less Than A Month – PM Truss Needs More Than Anti-Chinese Rhetoric To Show Her Competence

Economic Disaster In Less Than A Month – PM Truss Needs More Than Anti-Chinese Rhetoric To Show Her Competence


Before then-Foreign Secretary Liz Truss won the confidence of the ruling Conservative Party to become the United Kingdom’s next prime minister, she was vigorously campaigning on the anti-China platform. Both she and former Chancellor of the Exchequer Rishi Sunak were competing with each other to win the anti-Chinese contest. She beat Sunak by 81,326 to 60,399 votes.



Taking a page from Trump’s playbook, she views China as a threat to not only national security, but also to the international order, adding fuel to the already worsening relations between London and Beijing. Truss lectured that the Chinese should learn from the West’s economic retaliation to Russia’s invasion of Ukraine. She was more hostile to China than her predecessor – Boris Johnson.



There was a moment of “golden era” between Britain and China under Prime Minister David Cameron, where he said in 2015 that he wanted to be Beijing’s closest friend in the West. But everything changed after Trump was elected as president. Parroting Washington’s anti-Chinese policy, Britain has moved from being China’s greatest supporter in Europe to one of its fiercest critics.



As trade secretary, Truss warned that the West could lose control of global trade unless it got tough with Beijing. In 2021, she convinced fellow G7 foreign ministers to condemn China’s economic policies – Belt and Road initiative (BRI) – that develop infrastructure and trade links across the world. She also warned that unless China plays by the “global rules”, it cannot become a superpower.



Beijing did not need to retaliate, despite the fact that the new Truss government will need to work with China to promote climate security, as well as to trade with China to address inflation. In just less than a month in office, the new British Prime Minister has already done a spectacular job in sending the UK deep into economic crisis, so much so the nation is on the brink of recession.



The egoistic Truss, along with her new finance minister, Kwasi Kwarteng, hastily announced a radical new economic agenda. A “mini budget” that would cut taxes by £45 billion to boost the UK economy was introduced, which includes scrapping the highest rate of income tax for the richest from 45% to 40%. It will also slash energy prices for millions of households and businesses this winter.



However, there’s one “huge problem” with the half-baked programme. The nation has no money so Truss’ brilliant plan involves borrowing, a policy that goes against fiscal prudence established by her predecessors for the last 12 years. Economists immediately condemned her reckless gamble, but not before investors and traders dumped the British pound like a plague.



Traders were not impressed over the biggest tax-cutting package in 50 years, introduced just a day after the Bank of England warned that the country was already in a recession. Truss’ promise of a “new era” saw the British pound crashed to a record low against the U.S. dollar last Monday (Sept 26) – plunging as low as US$1.0373, its lowest level since the decimalization of the currency in 1971.



The crisis was so bad that the Bank of England has been forced to intervene to protect the UK’s financial system from a meltdown apocalypse. Fearing that the mini-budget could threaten the financial health of the country’s biggest pensions and insurance companies, which together manage trillions of pounds of people’s cash, the Bank pledged “unlimited” bond-buying rescue plan.



The announcement to splash £65 billion to buy as many long-dated government bonds as needed over the next 13 working days (from Sept 28 till Oct 14) to stabilize its bond market was an admission of the incompetence of Truss government. It was so screwed up that the IMF (International Monetary Fund) has joined the bandwagon condemning the tax cut which triggered the collapse of the pound.



Thanks to clueless Truss (who fantasized she was Reagan or Thatcher), the Bank of England may have no choice but to raise interest rates to near 6% by next spring, from the current 2.25%, to support the currency and contain inflation. Yet, the defiant prime minister still tried to defend her toxic economic agenda, assuring that it will provide more details of its plans on November 23.




But the damage has been done – the economic chaos saw about 1,000 mortgage products taken out of the market as banks struggle with bond market uncertainty. On the other hand, business owners are already facing a sharp rise in borrowing costs while hundreds of thousands of people with mortgages will need to refinance their loans.



Hilariously, while Truss insisted she is “unapologetic” in “focusing relentlessly on economic growth”, she could not answer why the wealthiest 5% will become richer due to the income tax cut from 45% to 40%, but only 1% cut for earners in the lowest band of income tax (from 20% to 19%). Essentially, 95% of the population earning less than £150,000 a year will get poorer by paying more.



Charlie Bean, former deputy governor of the Bank of England, said the UK government has made “really stupid” decisions. It would take a week of volleys of criticisms for the newly crowned British PM to – reluctantly – admit her government’s mistakes. But instead of taking full responsibility like a leader, she shamelessly put all the blames on Chancellor Kwasi Kwarteng.



Pointing finger at her colleague, Truss said that the tax cut reforms were not agreed by her cabinet, but were a decision made by Kwarteng – “It was a decision the chancellor made”. The irresponsible act saw Nadine Dorries (the former culture secretary who had backed Truss to be PM) slamming Truss for throwing Chancellor Kwarteng “under the bus”.



The despicable damage-control of sacrificing Kwarteng to ensure Truss’ survival as prime minister goes to show the type of leadership of the country. To be sure, Kwasi Kwarteng himself is equally incompetent. Despite the market chaos after his mini-budget, the chancellor has even suggested that there was “more to come” on tax cuts.



Both Truss and Kwarteng were in hiding while the bond and currency chaos continued for days. When the prime minister finally emerged, she tried to spin her disastrous economic agenda with local radio stations. But she was humiliated instead, unable to answer about the housing market and benefits for the poorest people as a result of inflation.



The very fact that the new government needed until November 23 to reveal its plan in details suggests that Truss and Kwarteng had absolutely no idea that it was a bad economic plan from the beginning. Rachel Reeves, Labour’s spokeswoman on Treasury issues, said – “It is a budget without figures, a menu without prices. What has the chancellor got to hide?”



The last time the central bank had to intervene in such fashion was when currency speculator George Soros broke the Bank of England in 1992. One independent analysis expected the screw-up to cost taxpayers £190 billion this fiscal year. Truss is trying very hard to become popular to show off her capability. Unfortunately, she’s no Margaret Thatcher, let alone Ronald Reagan.



A survey by the Observer newspaper showed three-quarters of British voters, including 71% who backed the Conservative Party in the last election, believe PM Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng have “lost control” of the economy. Another survey by YouGov shows that the Tories are 33 points behind opposition Labour Party after the economic mishandling.



Truss could become the shortest-serving UK prime minister in modern history. Even before the economic turmoil was sparked by her government’s £45 billion tax giveaway gamble, the bookies didn’t think she would stay long at No 10. Punters bet that she will lose her job quicker than former PM Theresa May. After demonstrating her incompetence, she can’t use China as a punching bag anymore.