Seismic election upheavals in Britain and France have redrawn the political landscape of Europe, and the ripple effects could reshape trade dynamics with Asian growth engines like India and Southeast Asia in the months ahead.
Voters’ economic anxieties propelled the UK’s Labour Party to a landslide win, toppling the Conservatives after 14 years in power. Across the English Channel, the left-wing New Popular Front coalition secured the most seats in France’s hung parliament.
For Britain’s new Prime Minister Keir Starmer, resetting ties with the European Union will top his agenda. But his “pragmatic” government will also be keen to engage with Asia’s emerging, surging economies, analysts say.
“They see Asian tiger economies and political systems as being in a state of transition,” said British political and security analyst Christopher Blackburn. “These countries already have good regional infrastructure. But Europe can help with boosting and accelerating wealth, development, and human potential.”
The cost-of-living crisis that has gripped Britain and much of Europe was a key driver behind the electoral upsets. Inflation has outpaced household incomes, sparking a squeeze on living standards – partly driven by supply disruptions in the wake of Russia’s war with Ukraine.
France’s New Popular Front campaigned on a platform of economic largesse, pledging to raise the minimum wage, cap prices on essentials and scrap an unpopular pension reform that raised the French retirement age.
Though the leftist coalition may have won the most seats, their expansive economic agenda has raised concerns about the country’s ballooning debt levels, which analysts warns are bound to put the economy under stress.
With none of the three main political blocs securing an outright majority, France now faces the challenge of forming a coalition government. The final economic agenda will depend on which alliance takes the lead.
Both Britain and France are likely to need higher welfare spending to address voters’ economic anxieties. That means tax revenues will need to be supplemented by increased trade income.
For the UK’s new Labour government, strengthening strategic partnerships in Asia will be a key priority. Chief among these is a long-discussed free trade agreement with India, which was on the cusp of being finalised under the previous administration.
Analysts say such a deal could boost the UK economy and partially compensate for the loss of trade access in the EU after Brexit, which is widely held to have weakened Britain’s growth prospects.
Negotiations for the UK-India FTA were launched in January 2022, with the ambitious goal of completing it by the Indian festival of Diwali that year. But the drawn-out talks stalled completely after former prime minister Rishi Sunak called snap elections in late May.
Turning tides
Initially, the Labour Party did not seem favourably disposed towards the trade pact, but that stance now appears to be shifting. “It seems they are changing their perspective on India,” said TS Vishwanath, a New Delhi-based trade analyst and principal adviser at international trade advisory ASL-Legal.
“They want to be close to India,” he said, highlighting Labour’s apparent abandonment of its past calls for international intervention and a UN-supervised referendum on the Kashmir issue – a position at odds with the previous UK government’s view of it as a bilateral matter between India and Pakistan.
Starmer has emphasised that strengthening ties with India will be a priority for London. “The FTA is not just an economic, but also a political statement,” Vishwanath said, adding that he thought the UK’s new Labour government “would be open to negotiations”.
In a statement on July 6, India said Prime Minister Narendra Modi had congratulated Starmer on his election victory, and “the two leaders agreed to work towards an early conclusion of a mutually beneficial India-UK FTA”.
Securing a similar trade deal between the EU and India would likely take longer, said Harsh Pant, an international relations professor at King’s College London. That’s because it requires unanimous agreement among the bloc’s 27 member states before it can be finalised.
Analysts also expect France and other EU members to increasingly engage with the Association of Southeast Asian Nations, driven by concerns over Russia’s attempts to expand its influence in the region.
The China factor
Opinions are divided on how the UK and France, as well as the EU, will manage their trade dealings with China going forward.
The EU recently raised tariffs on Chinese electric vehicles, claiming “unfair subsidisation” had allowed China-made EVs to be sold at lower prices than those produced within the bloc. This move followed the US introducing 100 per cent tariffs on Chinese EVs in May.
Both Brussels and Washington have accused the Chinese government of unfairly subsidising its EV sector, allowing producers to export cars at artificially low prices, and threatening jobs in the West. China has denied these allegations.
Some analysts suggest the UK could take cues from the EU in guiding its economic relations with China.