In the years since the financial crisis, the way countries trade has started to shift. Trade is no longer just the ships, planes and lorries that move the goods we buy around the world or the services we consume either physically or digitally. Physical trade has a fundamental role in achieving economic targets and promoting growth. But in the digital era, it has also become a weapon of national security strategy in the strategic competition between China and the US for international influence and power.
Why has this transition in the character of trade occurred? Powerful states are increasingly reluctant to challenge one another through conventional military means. In June 2019, the Arms Control Association estimated that, between them, the US, Russia and China possessed around 13,000 nuclear warheads. Rather than create conflict, this actually creates a stalemate. If the warheads were used, mutually assured destruction would be the consequence. As a result, they have been used as a defence against their own use throughout the Cold War period and beyond. This creates a somewhat tenuous nuclear peace, particularly given the volatility of states such as North Korea in recent times.
The challenge for countries and governments then is how to protect national interests and retain power in a world where large-scale military conflict with the potential of nuclear war is not an option. This had led to states pursuing an ‘all means’ approach to power politics, characterised by a blending of conventional military force along with cyber and information warfare. More importantly for the world’s business community, it has also led to a blurring of the lines between economics, politics and trade – through trade wars.
What has become apparent over the past four years of Brexit and the Trump presidency is that trade has become a means of creating a nationalistic narrative alongside a quest for power globally. The calculation is a simple and compelling one for a domestic audience: “I export more, you export less. I win, you lose.” It is trade and economic power that defines the nation and creates an ‘enemy across the table’: in the US case, China, and in the UK’s case, the EU.
The US and the UK are not alone. During the COVID-19 crisis, 94 countries have imposed restrictions on exports of medical equipment to help the fight against coronavirus. The rules-based international order defined by the World Trade Organization becomes inadequate to deal with the imperative of this nationalistic agenda.
Worse than this, trade wars are arguably a misdirection and hide the larger scale of the strategic conflict between the superpowers. Russia and China, as well as the US, are deeply nationalistic, but the power struggle is for control of influence over culture and thought (so-called sharp power), technology and digital flows, and of course financial flows as well.
While we have looked in horror as international structures of global trade weaken and trade barriers are erected, outside of the trade negotiations we have seen: sanctions and restrictions imposed on US technology businesses working with Chinese technology businesses; threats of sanctions against German companies operating on the Nord Stream 2 gas pipeline; and the threat of secondary sanctions against any company trading in US dollars with any association with Iran.
In short, the defence of national interests has been fed to the compliance functions in banks. It no longer sits with the military.
Will this change with a new administration in the White House? President Elect Biden certainly strikes a more emollient tone. He is a believer in multilateralism and has committed to working more closely with allies, and particularly the EU.
However, the focus of the US administration will be on reuniting the country after the ravages of the COVID-19 pandemic and four years of a divisive regime under President Trump. His mantra is not “Make America Great Again” – rather it is “Made in America”. He does not talk about China as a revisionist state, but he does stress that “national security is economic security”.
After four years of tensions with the EU, Biden is keen to restore the US’s strategic relationship with the EU, but it is already clear that this is as much about isolating China and ensuring that Europe contributes to NATO budgets as it is about the multilateral ideals that both sides share.
The foreign policy slogan of the Biden campaign was: “Restoring America’s leadership in the world”. Make no mistake, this does not mean that we are returning to the era of unfettered globalisation. Rather, under the guise of multilateralism, the US will return to play its role within international organisations that it has abandoned over the past four years. The underlying domestic narrative will, however, remain the same.
Dr Rebecca Harding is an independent economist and CEO of Coriolis Technologies, which provides data as a service to the trade finance and banking sector