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Labour will on Wednesday attack the government’s “worrying” decision to water down screening rules for foreign investments, warning that it would put the UK at odds with key allies.

Jonathan Reynolds, shadow business and trade secretary, will argue that Britain must keep up its guard against countries like China, as he sets out the main opposition party’s new trade policy.

Reynolds will tell an audience at London’s Canary Wharf that Labour’s trade policy will reflect the party’s “securonomics” approach, linking trade to a beefed-up domestic industrial policy.

He also will commit Labour to boosting exports by small businesses and argue that Britain should pursue fewer, but higher quality, trade deals, some stopping short of full-blown free trade agreements.

Earlier this week, Oliver Dowden, deputy prime minister, told the Financial Times that the government would pare back the UK’s investment screening powers to make them “more business friendly”.

Dowden’s comments came as he launched a review he said was aimed at “narrowing and refining” the National Security and Investment Act, which allows the government to scrutinise and ultimately block takeovers.

Reynolds will argue that Britain must trade with China in the mutual interest of both sides, but warn that Chinese investments “simply cannot be treated in the same way” as those from other countries.

“I feel the measures as they are now are sufficient and to dilute them would be a worrying signal to send,” he will say. “It would be inconsistent with the position of our allies.”

Labour’s trade policy would reflect a changing global environment and a belief across the west in the need to build resilient supply chains and recognise “that western industrial capacity is still important”.

Reynolds will claim that Rishi Sunak’s government had tried to do too many trade deals simply to prove the point that Britain was no longer in the EU customs union.

“As a consequence I believe there is too great a focus on quantity, over quality,” he will say, arguing that the country needs a clearer strategy.

He will promise a future Labour government would ensure continuity in any continuing trade talks, such as those with India. Rishi Sunak has repeatedly expressed optimism about sealing a free trade agreement with New Delhi but Labour remains sceptical the prime minister will get it over the line ahead of the general election, which is expected next year.

“Clearly stability matters,” he will say. “I want to give explicit assurances to those negotiating with the UK government at the moment: they will also find a willing partner in Labour.” The opposition party is well ahead of the ruling Conservatives in the polls.

Reynolds will announce a task force, working alongside the Federation of Small Businesses, to try to remove barriers to exports by SMEs.

He will repeat Labour’s call for improved trade relations with the EU, focusing on specific issues such as a veterinary agreement, mutual recognition of professional qualifications and intra-company transfers.

But he will add: “Brexit is a settled matter. Labour will not be seeking to rejoin the single market or customs union or seek to reopen the wounds of the past.”

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