BY: M. STEVEN OSBORNE
The return of great power competition will connect international trade and commerce with geopolitics. Commercial advantage and international political strategy have largely operated in separate spheres since the end of World War II, but prior to the war, international commerce was often subservient to political interests. Capitalism and the rise of the liberal democratic world order made international commerce and the free flow of goods an end unto itself. Now, commerce is once again becoming a tool in the hands of competing states. This development will present new challenges for government and business.
International trade is increasingly weaponized. Recent examples illustrate how commerce is an instrument of politics. For example, the Trans-Pacific Partnership was crafted to counter Chinese expansion. Ongoing negotiations among the European Union regarding the British exit from the Union focus more on extracting pain from the British to demonstrate a political consequence for leaving the Union rather than on establishing a productive commercial relationship between the two powers. The Chinese Belt and Road initiative expressly aims to restore Chinese political influence along a “New Silk Road” even when its economic investments defy basic market principles. These maneuvers stand in stark contrast to the more objective, market-driven investment and trade regime imagined by the framers of international institutions, such as the World Trade Organization.
The confluence of commerce and geopolitics will produce trends policy makers and businesses should be aware of. Commercial interests will once again become a rationale for geopolitical action. Trade and international investment will serve the political interests of host governments, and governments will view violations of trade treaties in a more hostile light. Meanwhile, governments will increasingly press businesses into service of geopolitical goals. This will create opportunity and peril for those who participate in the global marketplace.
First, international trade and investment has become a valuable tool for governments seeking to extend influence. Governments can connect international trade and investment to their goals through the development of multilateral economic systems. These are trade and investment pacts, both formal and informal, that tie nations and interest groups together for the furtherance of geopolitical aims. The use of multilateral economic systems to achieve foreign policy goals is not new. Napoleon’s Continental System was aimed at uniting the European continent commercially. The Continental System was a trade and investment arrangement meant to isolate Napoleon’s geopolitical rival Great Britain.
History demonstrates that violations of multilateral economic systems carry risk. In great power competition, behavior averse to the system is not simply an annoying or inconvenient business decision, but a defiant act against the power controlling the system. Napoleon’s disastrous invasion of the Russian Empire was premised in part on Russian violation of rules set forth in Napoleon’s Continental System.
Likewise, prior to World War II, sanctions and other trade embargos were considered grounds for war. A reason for the 1941 Japanese attack on Pearl Harbor and other American territories were American sanctions cutting off trade with Japan. As French President Emmanuel Macron recently observed, “trade wars quickly become war, full stop.” Now, nearly 80 years after Pearl Harbor, trade relations are, in many cases, tantamount to diplomatic relations.
The return of great power competition has introduced a “revenge of history” moment by tightening the connection between international trade and geopolitics. China under the leadership of Xi Xinping has revolutionized the use of trade and investment to achieve foreign policy aims. The Belt and Road Initiative presents a revenge of history moment the West must grapple with. China is reconnecting the Asian continent through a New Silk Road. Unlike the Silk Road of antiquity, Beijing will control and manage the New Silk Road.
In the 21st century, China has pioneered the use of commercial interests to achieve geopolitical aims. China is implementing its Belt and Road strategy alongside its “Made in China 2025” initiative. China pairs these developments with the Middle Kingdom’s long term strategy to be a predominant power by 2050. The Belt and Road initiative is the nascent beginnings of a multilateral economic system. It is a centerpiece of China’s long term strategy to anchor itself in Central Asia and draw Eastern Europe, the Middle East, and Africa towards itself.
Chinese investment in nations along its Belt and Road comes with strings. Nations who default on Chinese loans or who align themselves against Chinese interests could find themselves in a similar position to Russia in 1812. The re-emergence of great power competition and its pairing with multilateral economic systems will create fault lines for conflict. Nations straddling this fault line must be aware of this risk.
Likewise, Great Britain is soon to be boxed out of the European Union’s multilateral economic system after Brexit. The European Union has a vested interest in ensuring that other nations do not follow Great Britain’s lead. Like the old Continental System, the European Union will burden commerce with the British unless the British make painful concessions and cede some level of authority to the European Union.
In response to these developments, the United States and Great Britain will likely recalibrate their position on global markets. In the post-war period, both powers maintained and facilitated an open international market in which all nations participated as equal actors. Americans played a central role in the creation of the United Nations, the World Trade Organization, and various international trade arrangements. Likewise, Britain de-colonized and focused on building international liberal institutions. Ironically, the very institutions that the United States and Britain helped create were blamed for harming blue collar workers in those countries. This led to the rise of populist movements in both countries, which facilitated Brexit and the election of President Trump.
Some in Britain have suggested investing in an alternate multilateral economic system, the Commonwealth of Nations. The Commonwealth of Nations is a shadow of British imperial influence. It is a reminder of the former expanse of that influence. While many advocates of British withdrawal from the European Union were explicitly protectionist, this sentiment was not shared by all “Leave” voters or leaders. One of the key talking points for Brexit was that it would allow for a “global Britain” uninhibited by the trade restrictions of the European Union. Britain now has the opportunity to build a multilateral economic system among the Commonwealth nations. The stronger the Commonwealth system, the more leverage Britain will have in future negotiations with the European Union.
With China pioneering the use of multilateral economic systems, some have suggested the United States emulate the Chinese approach. Scholar Michael Lind considers the United States and China to be locked in “Cold War II” and suggested an American approach that incorporates the Chinese strategy of utilizing commerce and investment for political ends. He specifically suggests aggressive infrastructure projects in Latin America, with American businesses providing the materials and labor to construct an American version of Belt and Road connecting the Americas. In the absence of such efforts, China could seek to incorporate Latin America into its larger multilateral economic system.
The development of multilateral economic systems spearheaded by the United States will create domestic pressures. The United States will need to strike a balance between domestic interests and international investment avoiding a zero sum game. China is using its multilateral systems to benefit its domestic industries. The United States could act similarly. There is an upside to international trade and investment, provided the overall health of the market and well being of the people is considered above temporary profits.
This new environment will also create challenges for business. Presently, a CEO is a political figure, and his company will be treated as an international actor. There will be pressure for businesses to contain their operations within various multilateral systems. Already, the United States is monitoring foreign investment through the Committee on Foreign Investments in the United States (CFIUS). Should regulations from the CFIUS become more onerous, it could discourage foreign investors from acquiring assets in the United States. Companies seeking to do business across rival multilateral economic systems will need to increase their involvement in the political systems of key countries controlling the battle lines.
Time will tell whether an international marketplace decoupled from politics will emerge once again. For now, governments and businesses must navigate new territory in international trade relations.
Steven Osborne is an attorney with Adams and Fisk, PLC. He holds a Juris Doctorate from Liberty University School of Law and a Bachelor’s Degree in Politics and Policy from Liberty University. In addition to his legal practice, he is involved in foreign policy analysis and advocacy with a focus on domestic and international politics, economic opportunity, and human rights.
Photo Credit: Gettyimages.com/Blend Images – Dave and Les Jacobs
Please note that opinions expressed in this article are solely those of our contributors, not of Political Insights, which takes no institutional positions.