November 2017

Dr Rebecca Harding raises her concerns about the transformation of trade as means of coercion in her latest book that analyses the “great unbalancing of politics and economics”

International trade is about more than just economics, and not only for the US administration. Trade is about coercion and strategic influence.

Since the 2008 global financial crisis, the language around trade has shifted. Before, politicians described it as a benign mechanism for promoting global economic growth. Now their statements about trade are steeped in the rhetoric of war. Instead of global opportunities and wealth creation, politicians on both sides of the Atlantic talk about “protection,” “security,” “national interest,” and “defence”.  Former trade partners are now trade “enemies” – with “unfair” protectionist policies against which it is natural for any politician to rail.

Tool of state strategy

Through this linguistic metamorphosis, trade becomes a tool of state strategy. Trade deals have foreign policy objectives. The UK Prime Minister, Theresa May, and the US President, Donald Trump, have both conflated trade goals with foreign policy goals. Theresa May, in her Article 50 letter to the President of the European Council triggering the UK’s exit from the European Union, suggested that a trade deal could be linked to UK participation in European security arrangements. Donald Trump has explicitly linked US discussions with China to the issue of North Korea’s nuclear programme.

Although “weaponization” is an inflammatory term, in the context of trade it can be used literally. Weaponization is the transformation of a benign instrument into a means of aggression and, increasingly, we have observed states wielding trade coercively. In short, through language, the character of trade has changed from an implicit tool of coercion to the explicit means through which foreign policy objectives are achieved.

A matrix of the G20 shows the relationship between hard and soft power through trade. This is a stylised representation but nevertheless provides a picture of how trade and hard and soft power are linked to countries (see Figure 1). Soft power is on the vertical axis (from weak to strong) and hard power is on the horizontal axis. Soft power is seen as a function of trade value and trade openness while hard power is proxied through the correlation between arms trade and GDP and dual-use goods as a share of total trade.

Figure 1: The trade-based soft-hard power matrix

diagram1
Source:  Authors’ interpretation

This approach puts Germany, South Korea and Japan largely into the top left hand corner of the quadrant showing strong trade but weaker actual hard power. The US, in contrast, is at the top of the hard and soft power quadrant: it is the world’s second largest trading nation (the largest importer) but it is not as open as, say Germany; the correlation between GDP and arms is very high. China is the interesting one to place: it is the world’s largest trading nation and yet is quite closed. Its background hard power, represented through dual-use and arms trade, places it in the hard power quadrant, despite the fact that rhetorically and diplomatically it presents itself as a soft power. The UK is the hardest to place: it is the world’s sixth largest importer and tenth largest exporter, meaning that its soft power is relatively weak, howsoever open it may be. Alongside this, the correlation between arms trade and GDP is weaker than for many other countries although the proportion of trade accounted for by dual-use goods is the highest of the G20, suggesting “strategic intent” is innate to its trade. This places it towards the centre of the matrix with a bias towards hard power.

Step back from the brink

There are no circumstances under which the figurative and the literal weaponization can be seen as a good thing. For everyone who works in financial services or the corporate sector, the benefits of trade require a balance between economics and politics. Although trade and foreign policy have been interwoven throughout history, the belligerence of the language at present means there is a risk of trade becoming predominantly political, rather than economic. This puts at risk the economic and political gains of the period since the Second World War. Unless governments retreat from their current rhetoric, the scope for mistrust and retaliation will grow. Policy makers need to step back from the brink of weaponized trade policy, and demonstrate that they understand their responsibilities as leaders, regulators and facilitators of trade and multilateralism.

 


The Weaponization of Trade: the Great Unbalancing of Politics and Economics
by Rebecca Harding and Jack Harding was published on 25 October 2017 by the London Publishing Partnership

 

Dr Rebecca Harding

CEO and Founder Equant Analytics

Dr Rebecca Harding

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