AS CHINA’S economy gets bigger and modernises, it is inevitable that many tens of millions of Chinese people will earn higher wages.

That will mean, over time, that the country’s competitive advantage as a source of cheap factory labour will erode. It happened with South Korea and Japan.

Everything else being equal, that should mean that the country’s massive trade surplus with the West should reduce.

But everything else isn’t equal. Exchange rates and tariffs distort the ability of Western nations to export to China, which has carefully designed its system of tariffs to encourage foreign manufacturers to set up assembly plants in the country rather than importing completed vehicles.

China levies a 10% tariff on imported components, while the tariff on fully assembled vehicles is 25%. This disparity has encouraged BMW and others to establish factories in China.

The fact that some manufacturers have sought a competitive price advantage by assembling cars in China forces rivals such as Jaguar Land Rover (JLR) to follow suit. That’s why JLR is currently in talks with the Chinese authorities about building a facility that might make Freelanders there.

The issue of Chinese tariffs is therefore of profound importance to Britain’s industrial future. In addition, many commentators believe that substantial Chinese trade surpluses lead directly to the unsustainable credit boom in the West.

That’s because the Chinese were able to make huge savings in foreign denominated currencies which were then reinvested into the West. This created a massive boost to the West’s money supply, which in turn found its way into the US housing market and fuelled the sub-prime credit boom. The rest, as they say, is history.

There are, therefore, several important reasons why the West must keep up pressure on the Chinese to reform their trade practices. As things stand, unfair trade conditions harm the prospects of factory workers in Britain and the rest of the Western world and risk perpetuating the principal global economic imbalance that was the root cause of the credit crunch and subsequent recession.

AT THE time of writing, Prime Minister Silvio Berlusconi’s grip on power in Italy was slipping.

Now that Greek Prime Minister George Papandreou has resigned, thereby removing the principal obstacle to a Greek bailout, the spotlight has focused very firmly on Italy’s leader.

He is seen as either unable or unwilling to deliver the public finance reforms his country so badly needs. His departure is deemed necessary for progress and stability.

At nearly 2 trillion euros, rescuing Italy from its national debt seems to be beyond the combined resources of the eurozone’s 17 member states. Instead, any Italian bailout may require contributions from other countries from around the world, including the United States, Brazil, China and Britain. Such bailout funds would be channelled through the International Monetary Fund.

This, in turn, will create political controversy in Britain where the euro-sceptic right will howl with protest that British taxpayers’ money is being squandered on a discredited European dream.

But however many billions Britain ends up contributing, the sum would represent a fraction of the cost that this country would incur should Europe’s economy fall back into a deep recession.